What type of costs are included in the Cost Method of Inventory Valuation?

The correct answer is that the Cost Method of Inventory Valuation includes transportation or other costs incurred in acquiring merchandise. This method aims to capture the total cost associated with getting inventory ready for sale, which encompasses more than just the purchase price of the goods.

When utilizing the Cost Method, businesses account for all costs necessary to bring inventory to its current condition and location. This not only incorporates the purchase price but also includes expenses such as transportation fees to ship products to a business, handling charges, and any other costs directly tied to acquiring the inventory.

This comprehensive approach ensures a more accurate reflection of the total investment in inventory on the financial statements, which is critical for determining profit margins and making informed financial decisions. Conversely, options focusing only on shipping costs, purchase price, or storage and handling costs would fail to capture the full scope of expenses, leading to undervalued or misrepresented inventory values.