Chapter 3, Problem 1Q

1. Define merchandise inventory. What types of costs are included in the Merchandise Inventory account?

To determine

Give the meaning of ‘Merchandise Inventory’, and indicate the costs included in Merchandise Inventory account.

Explanation of Solution

Definition of Merchandise Inventory: Merchandise is the stock of goods bought by a wholesaler, or a retailer, or a trader, to be sold within a year. Merchandise Inventory is a current asset account which includes all the costs incurred to acquire merchandise, and process it further for sale.

Costs included in Merchandise Inventory account: The following costs are included in Merchandise Inventory account:

• Price of goods
• Shipping costs
• Transit insurance cost
• Storage costs
• Packaging costs

These inventory costs are also referred to as product costs because they are related to the product (goods or stock).