The following costs were among those incurred by Woodcroft Corporation during year 2:

 The following costs were among those incurred by Woodcroft Corporation during year 2:

Merchandise purchased for resale    $500,000
Salesmen’s commissions    40,000
Interest on notes payable to vendors    5,000


How much should be charged to the cost of the merchandise purchases?
$500,000
$505,000
$540,000
$545,000

Answer

$500,000

 
 You Answered Correctly!
This answer is correct. The costs to be charged to merchandise purchases should include those costs necessary to prepare the merchandise for sale. Salesmen’s commissions are a selling expense and not related to the acquisition of the merchandise. These costs are expensed in the period incurred. The interest is a financing expense and is also expensed in the period incurred. Thus, only the $500,000 should be included in the cost of the merchandise purchases.