The following costs pertain to Den Co.’s purchase of inventory:

 The following costs pertain to Den Co.’s purchase of inventory:

700 units of product A    $3,750
Freight-in    175
Cost of materials and labor incurred to bring product A to saleable condition    900
Insurance cost during transit of purchased goods      100
Total    $4,925


What amount should Den record as the cost of inventory as a result of this purchase?
$3,925
$4,650
$4,825
$4,925

Answer

$4,925

 You Answered Correctly!
This answer is correct. Inventory costs include all costs necessary to prepare goods for sale. For a merchandising concern, these costs include the purchase price of the goods, freight-in, insurance, warehousing, and any costs necessary to get the goods to the point of sale (except interest on loans obtained to purchase the goods). Therefore, the correct answer is that inventory costs are equal to $4,925 ($3,750 + $175 + $900 + $100).