Serene Comfort sells a wide range of mattresses, beds, and other bedroom furniture. For the most recent year, they provide the following data:
Beginning inventory .... $2,450,000
Cost of purchases ..... 23,125,000
Ending inventory ........ 2,225,000
Transportation in ....... 179,050

The firm informs you that it has traditionally written off the cost of transportation in to the cost of goods sold account. However, the firm has a new auditor this year. This auditor insists that the cost of transportation in, a product cost, should flow through the inventory account.

Required:
a. Determine the cost of goods sold, ignoring the cost of transportation in.
b. Allocate the cost of transportation in between Ending inventory and cost of goods sold, using the account values as the allocation basis. The accountant informs you that there is no need to adjust the beginning inventory value for last year’s values.
c. What arguments could you make to justify the procedure in (b) as a reasonable way to deal with the accountant’s objections? How, if at all, could you justify Serene Comfort’s earlier action of writing off the entire amount to COGS?