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Cost of Inventory-Merchandise/Goods

Cost of Inventory- Merchandise/Goods


Cost of Inventory for merchandising company

The examples of merchandising company are as follows.



  • Company purchases and sells phones, computers, scanners, LDC
  • Company purchases and sells cars, motor
  • Company purchases and sells furniture
  • Company purchases and sells TV

Cost of inventory = purchase price-trade discount-sale return and allowance+ freight + insurance + import taxation + Specific tax (if any) + port fee + clearance cost + handling cost + other relevant costs

Note:

  • Settlement discount because of early payment is excluded cost of inventory, so it is other income.
  • VAT input is excluded cost of inventory if it can be claimed from VAT output when we sell inventories.

Example

ABC imports cars to sell in XYZ country.  The assumption costs are as follows.

Purchase price……………………………$50,000

Import tax…………………………………$10,000

Specific tax………………………………..$5,000

VAT input………………………………….$6,500

Bank fees transferred to suppliers……$30

Port fee …………………………………….$100

VAT Input………………………………….$10

Clearance cost …………………………..$200

Transportation in……………………….$1,000

VAT input………………………………….$120

Handling cost…………………………….$100

Public Relation  cost……………………$80

Required:

We assume VAT input can be claimed with VAT output. Calculate total costs of cars.

Answer 

Cost of cars =50,000 +10,000+5,000+30+100+200+1,000+100= $66,430



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