Which costs are inventoriable?

Inventoriable costs are those costs that are associated with the production of goods and are considered assets on a company's balance sheet until the goods are sold. Once sold, these costs are recognized as an expense on the income statement as cost of goods sold.

Product costs, which include direct materials, direct labor, and manufacturing overhead (both variable and fixed), are all classified as inventoriable costs. These costs are incurred to create a product and are essential for manufacturing and preparing items for sale. Therefore, they are included in inventory until the point of sale.

Operating expenses, direct labor costs only, or fixed manufacturing costs alone do not include the full range of costs required for producing goods, which is why they are not considered inventoriable in their own right. Recognizing that all product costs constitute inventoriable costs is crucial for accurate financial reporting and inventory management.