Jack McDowell, the controller for McDowell Lumber Company, has recently hired you as assistant controller. He wishes to determine your expertise in the area of inventory accounting, and he therefore asks you to answer the following unrelated questions.
(a) A company is involved in the wholesaling and retailing of automobile tires for foreign cars. Most of the inventory is imported, and the company values the inventory at the actual inventory cost plus freight-in. At year-end, the warehousing costs are prorated over cost of goods sold and ending inventory. Are warehousing costs considered a product cost or a period cost?
(b) A certain portion of a company’s “inventory” is composed of obsolete items. Should obsolete items that are not currently consumed in the production of “goods or services to be available for sale” be classified as part of inventory?
(c) A company purchases airplanes for sale to others. However, until they are sold, the company charters and services the planes. What is the proper way to report these airplanes in the company’s financial statements?