[Anonymous]

During 20X1, Kam Co. began offering its goods to selected retailers on a consignment basis. The following information was derived from Kam’s 20X1 accounting records:

Beginning inventory $122,000

Purchases 540,000

Freight-in 10,000

Transportation to consignees 5,000

Freight-out 35,000

Ending inventory

Held by Kam 145,000

Held by consignees 20,000

In its 20X1 income statement, what amount should Kam report as cost of goods sold?

A. $507,000

B. $512,000

C. $527,000

D. $547,000

B. Beginning inventory $122,000

Purchases 540,000

Freight-in 10,000

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Cost of goods acquired 672,000

Add transportation to consignees 5,000

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Cost of goods available $677,000

Less ending inventory

Held by Kam $145,000

Held by consignees 20,000 165,000

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Cost of goods sold $512,000

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Why is the 5000 transportation to consignees included in COGS but the 35,000 freight-out is not? Aren’t they the same thing?

[242126]

The $5,000 freight out to consignee is part of the ‘cost' of getting the inventory to the place it will be sold. Inventory costs include all costs that are required to prepare goods to be sold – including the cost of transporting the goods to where they will be sold at. Cost of transferring goods to a customer is not part of inventory it is a selling expense. I don't think the question does a good job of explaining the freight-out is sending the goods to a customer. —>Cause it just as well could be freight-out to send the goods to a store.

[thehip41]

Transferring to the Consignment is a cost attached to the inventory. The Freight Out is a separate line item.

COGS 512,000

FR Out 35,000

Total expense 547,000

FAR - 83
AUD - 73 92
BEC - 83
REG - 88

Licensed CPA in the state of Michigan

[Author]

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