Cost of Inventory

[/Q/]
Q9. Cost of Inventory
How is the cost of inventory determined?

[/A/]
Inventory cost includes all expenditures necessary to make the inventory ready for intended use.

[Exercise]
(1) Entity 9A purchased 200 units of raw materials at $5 per unit.
(2) Transportation cost of moving raw materials to the factory warehouse was $100.
What is the cost of raw materials to be recorded at the time of recognition?

[Solution]
1. Cost of purchase = 300 units x $5 = $1,500

2. Transportation cost = $200

3. Cost of raw materials
   = Cost of purchase + Transportation cost
   = $1,500 + $200 = $1,700
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