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What are inventoriable costs?

Author:
Harold Averkamp, CPA, MBA

Definition of Inventoriable Costs

Inventoriable costs are:

  • A retailer’s cost of the goods (products) that it purchased for resale, and any additional cost to get the goods in place and ready for sale
  • A manufacturer’s costs to manufacture goods that will be sold, which consist of the costs of direct materials, direct labor, and manufacturing overhead

Examples of Inventoriable Costs

Assume that a retailer purchases an item for resale by paying $20 to the supplier. The item is purchased FOB shipping point, which means that the retailer must pay the freight from the supplier to its location. If the freight cost is $1, then the retailer’s inventoriable cost of the item is $21.

[If this is the only item in the retailer’s inventory, the retailer’s balance sheet will report inventory at a cost of $21. When the item is sold, the retailer’s inventory will decrease by $21, and the $21 will be reported on its income statement as the cost of goods sold.]

In the case of a manufacturer, assume one of its product’s required the following costs: direct materials of $6, direct labor of $4, and manufacturing overhead of $7. This manufacturer’s inventoriable cost (or product cost) is $17. The $17 will be part of the manufacturer’s inventory until it is sold. When it is sold, the $17 will be removed from inventory and will become part of the manufacturer’s cost of goods sold.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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