Determining the physical quantity that should be included in inventory normally is a simple matter because that amount consists of items in the possession of the company. The cost of inventory includes all necessary expenditures to acquire the inventory and bring it to its desired condition and location for sale or for use in the manufacturing process.

Required:

1. Identify and describe the situations in which physical quantity included in inventory is more difficult than simply determining items in the possession of the company.

2. In addition to the direct acquisition costs such as the price paid and transportation costs to obtain inventory, what other expenditures might be necessary to bring the inventory to its desired condition and location?

3. Access EDGAR on the Internet. The web address is www.sec.gov. Search for Sport Chalet Inc., a leading operator of full-service, specialty sporting goods stores in California and Nevada. Access the 10-K filing for the most recent fiscal year. Search or scroll to find the disclosure notes (footnotes). What costs does Sport Chalet include in its inventory?