The following costs pertain to Den Co.'s purchase of inventory: 700 units of product A $3,750 Freight-in 175 Insurance cost during transit of purchased goods 100 Cost of materials and labor incurred to bring product A to salable condition 900 Total $4,925 What amount should Den record as the cost of inventory as a result of this purchase?

A. $4,925

B. $3,925

C. $4,650

D. $4,825

A.

Explanation:

The cost of inventories include all cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition.

It does not include abnormal amount, storage cost unless necessary in the production, administrative overheads, selling and distribution cost.

The cost of purchase consists of the purchase price including duties and taxes, freight inwards, and other expenditure directly attributable to the acquisition. Trade discounts, rebates, duty drawbacks and other similar items are deducted in determining the costs of purchase.