[Q.33] What are inventoriable costs?

Inventoriable costs are 1) the costs to purchase or manufacture products which will be resold, plus 2) the costs to get those products in place and ready for sale. Inventoriable costs are also known asproduct costs.

To illustrate, let’s assume that a retailer purchases an item for resale by paying $20 to the supplier. The item is purchased FOB shipping point, which means that the retailer must pay the freight from the supplier to its location. If that freight cost is $1, then the retailer’s inventoriable cost is $21. Assuming this is the only item in the retailer’s inventory, the retailer’s balance sheet will report inventory at a cost of $21. When the item is sold, the retailer’s inventory will decrease by $21 and the $21 will be reported on the income statement as the cost of goods sold.

In the case of a manufacturer, a product’s inventoriable costs are the costs of the direct materials, direct labor and manufacturing overhead incurred in manufacturing the product.

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