Question

WAXS-D, merchandisers of musical instruments, has provided the following details: Credit terms are: 4/20, n/45, FOB shipping point. Calculate the net cost of inventory purchased assuming that there are no other inventory-related transactions during the month. Supporting Materials Mar. 5 Mar. 8 Mar. 13 Mar. 14 Mar. 20 Inventory purchased on account Freight in Purchase returns Allowances by vendor Payment made to vendor for purchases on March 5 ? $725,000 $35,000 $55,000 12,000 O $713,000 O$665,280 O$658,000 O$666,680

Answer 1

The net cost of inventory purchased by WAXS-D is $693,000, which includes the inventory purchase, freight, and deductions for returns and allowances, but excludes the cash discount as the payment was made without taking the discount. None of the above options are correct.

Step-by-step explanation:

To calculate the net cost of inventory purchased, we begin by applying the credit terms 4/20, n/45. This means the buyer can take a 4% discount if the payment is made within 20 days. However, since a full payment of $713,000 is made, the discount does not apply. The calculation is as follows:

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• Inventory purchased on account: $725,000
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• Freight in: $35,000 (adding to the cost of inventory)
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• Purchase returns: -$55,000 (deducting from the cost)
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• Allowances by vendor: -$12,000 (further deduction)

Net cost of inventory = Inventory purchased + Freight in - Purchase returns - Allowances

Net cost of inventory = $725,000 + $35,000 - $55,000 - $12,000

Net cost of inventory = $693,000 (This is the correct net cost reflecting all transactions.)