Question

An animal shelter purchases 230 plain T-shirts that it plans to customize and sell at an upcoming crafts fair. The supplier sends an invoice for $1,550, including shipping, to be paid within 30 days. The shelter pays one of its volunteers, a graphic artist, $180 to develop a customized logo for the shirts. A local shop charges $1.80 per shirt to print the logo. What is the total dollar amount that should be debited to the inventory account?

Answer 1

Inventory accounts should always be debited with all the costs that was allocated on it until it becomes completely ready to be sold or becomes a finished goods. When we consider the inventory recording for finished goods, the journal may be recorded as following.

Inventory A/C. Dr. to

Cost of production A/C. C.r.

Here the cost means all the sort of costs allocated to production. That Is, the cost incurred for purchase of raw materials and other associated costs until the completion of production. Now it may be easy to under stand what will be the values debited to inventory a/c with reference to the Journal given above.

When you compare the details with given with references above, you could understand that ,Number of T shirts with logo printed in it is the ending inventory. Here the requirement is to compute the total cost to be debited to the inventory account. Let's compute the total cost as below.

Total cost for inventory= Purchase cost of inventory+ All additional cost incurred until it becomes final product.

Let's figure out the total purchase cost of inventory

The number of units=230 T-shirts.

Total purchase cost including shipping charge = $1,550

Additional cost, that is logo making &printing cost. In this case , will be number of units to be printed * unit printing cost,

The number of units= 230 T-Shirts.

Cost of printing = Number of units *printing cost/unit

I.e= 230*$1.80

I.e = $414.

The logo making cost= $180.

The Additional cost on inventory will be

$414+$180

I.e =$ 594

Therefore total cost of ending inventory ad per the above formula will be,

Cost of finished goods= Purchase cost + All additional cost

I.e= $1,550+$595

I.e= $2144

Therefore total amount to be debited at the inventory A/C will be. $2144

As Per the reference above, the journal will be

Inventory A/C. Dr

$2144 to

Cost of finished goods A/C. C.r

$2144.

(Being total cost incurred for ending inventory was brought into Account)