Question

Sheridan Cosmetics Inc. had a number of transactions during the year relating to the purchase of various inventory items as noted below.

For each of the below independent transactions determine what amount should be included in inventory.

Lipstick products counted in the physical inventory amount to $21,500 which include $1,100 of duty charges for importing the goods and $2,600 of recoverable taxes (i.e. HST). (If an answer is zero, please enter 0. Do not leave any fields blank.)

Inventory

$ ？

Makeup kits held on consignment by a retailer with a cost of $14,700 (inclusive of $1,200 of commissions to the retailer). (If an answer is zero, please enter 0. Do not leave any fields blank.)

Inventory

$?

Costs of $4,600 to store makeup products in Sheridan Cosmetic’s warehouse. (If an answer is zero, please enter 0. Do not leave any fields blank.)

Inventory

$?

Answer 1

Following Inventory Value position in books of Sheridan Cosmetics :

1) Before answering the above Question , let me explain few lines relates to "Landed Cost Concept "

Landed cost is an essential part in Business , to determine companies bottom line . It represents total cost of Production include Price of the goods, shipment cost , insurance fees , customs duty + any other cost incurred to bring material at workplace .

On the above case , Lipstick product counted physical Inventory amount to $ 21,500 which include duty charges for importing goods ( part of Landed cost )$ 1,100 . But recovery of tax $ 2,600 should not be part of Inventory ( landed cost ) . We should ignore this cost . Final Inventory number would be = $ 21,500 - $ 2600 = $ 18, 900

Before start answering second one , let me explain about " Consignment Inventory " . Consignment Inventory mainly relates to Supply chain Inventory management . The consignor retains the legal ownership and the consignee is not required to pay the goods unit after they have been sold .

Consignment Inventory having fantastic features like : avoid Inventory Carrying cost , proper streamline supply chain. Otehr side of the coin , there are some risky arrangement for consignor ,

On the basis of above explanation , Make up kits held on consignment by retailers with a cost of $ 14,700 ( inclusive of $ 1200 to commission .)

This commission to retail would be excluded from Inventory cost . Final Inventory number would be = $ 14700-$1200 = $ 13,500

Before start of last part , let me explain about "Storage Cost".

Holding cost are those related with storing Inventory which remain unsold This cost is part of Inventory

Therefore cost $4600 to store make up products in Sheridan cosmetic Warehouse , should be treated as Storage cost and part of Inventory and disclose in the financial statement .