Seafood Trading Co. commenced operations during the year as a large importer and exporter of seafood. The imports were all from one country overseas. The export sales were conducted as drop shipments and were merely transshipped at Seattle. Seafood Trading reported the following data: Purchases during the year $12.0 million Shipping costs from overseas 1.5 million Shipping costs to export customers 1.0 million Inventory at year end 3.0 million What amount of shipping costs should be included in Seafood Trading’s year-end inventory valuation? A. $250,000 B. $0 C. $1,125,000 D. $375,000

D. $375,000

Explanation:

given data

Purchases during the year =  $12.0 million

Shipping costs from overseas = 1.5 million

Shipping costs to export customer =  1.0 million

Inventory at year end = 3.0 million

solution

we get here Seafood Trading’s year-end inventory valuation.

and we know here that shipping cost to export to customers is selling expense but not include the inventory.

so

shipping costs = ( Inventory at year-end ÷ Purchases during the year ) × Shipping costs from overseas    1

put here value and we get

shipping costs = [($3.0 million ÷ $12.0 million) × $1.5 million]  

shipping costs =  $375,000

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