Question

Which of the following costs does not become a part of inventory of a manufacturer?

The cost of raw materials used.

The cost of factory overhead.

Rent on corporate headquarters.

The cost of rent on the factory building.

Answer 1

Rent on corporate headquarters.

Any cost that is incurred for the manufacture of inventory will form part of that.Such cost may be directly related to inventory or indirectly.Inventory is product, a company is dealing with that.Such inventory is manufactrured in the factory of company.So, all costs that are incurred in the factory for the production of inventory is part of inventory.

Now,

The cost of raw material used

The cost of raw material used in the factory for the manufacture of goods is directly related to the product. It is a direct cost and part of inventory.

The cost of factory overhead

The cost of factory overhead is indirect cost such as factory rent etc. that is not directly related with the product but it is indirectly connected with goods because goods are manufactured in factory for which rent is paying. So it is an indirect cost and form part of inventory.

Rent on corporate headquarters

Now Rent on corporate headquarters is not related with the production of inventory because it is not incurred in the factory in which inventory is manufactured.It is part of the administration and operational cost. So it is outside the cost of inventory and will not form part of inventory.

The cost of rent on the factory building

It is indirect cost and will form part of inventory as explained in third paragraph.