Which of the following is NOT included in the cost of merchandise inventory?

• A. Freight-in charges
• B. Purchase discounts
• C. Import duties
• D. Sales commissions paid to sales staff

Answer: (D)

Verified step by step guidance

1. Understand the concept of merchandise inventory cost: Merchandise inventory cost includes all costs incurred to bring the inventory to its current location and condition for sale. This typically includes costs such as purchase price, freight-in charges, import duties, and purchase discounts.
2. Analyze each option provided: Freight-in charges are costs incurred to transport goods to the business, which are included in inventory cost. Purchase discounts reduce the cost of inventory and are also considered part of inventory accounting. Import duties are taxes paid on imported goods and are included in the inventory cost.
3. Consider the excluded cost: Sales commissions paid to sales staff are not directly related to acquiring or preparing inventory for sale. These are considered selling expenses and are recorded separately in the income statement, not as part of inventory cost.
4. Review the accounting treatment: Selling expenses, such as sales commissions, are categorized under operating expenses and are not capitalized as part of inventory cost. This distinction is important for accurate financial reporting.
5. Conclude the reasoning: Based on the analysis, sales commissions paid to sales staff are not included in the cost of merchandise inventory because they are unrelated to the acquisition or preparation of inventory for sale.