Inventoriable

Inventoriable costs are costs that are included in the cost of inventory on a company's balance sheet rather than being expensed immediately. They represent the expenditures necessary to acquire goods or to manufacture them and to bring the goods to their present location and condition.

In manufacturing settings, inventoriable costs include direct materials, direct labor, and manufacturing overhead allocated to production, as well as costs such as freight-in, import duties, and other costs to bring raw materials and work-in-progress to their current state and location. Finished goods inherit these costs too.

In merchandising businesses, inventorial costs typically include the purchase price of goods plus freight-in and other costs required to obtain the goods in a saleable condition. Costs such as selling and administrative expenses are not inventoriable.

Accounting treatment: Inventoriable costs are capitalized as inventory on the balance sheet and become cost of goods sold when the inventory is sold. The method of inventory valuation (FIFO, LIFO, or weighted average) allocates inventoriable costs to COGS. Some frameworks also specify whether certain financing costs are included as inventoriable costs.

The term inventoriable is used to distinguish costs that will be inventoried from period costs. It is commonly used in cost accounting and financial reporting to discuss how costs are matched with revenues.