Question 2 A manufacturing company\'s inventory at the end of an accounting peri

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Question 2 A manufacturing company's inventory at the end of an accounting period includes a finished product with the following costs to date: Purchase price of materials Less: 5% trade discount Import duty at 10% Direct labour costs Allocation of fixed production overheads Storage costs since product completed Advertising costs Total Cost 9,000 450) 8,550 855 5,850 2,840 225 317 18,637 Notes: (i) All of these costs exclude VAT. The company is able to recover any VAT (i) One-third of the materials included above were wasted as the result of an (ili) Fixed production overheads are allocated to products on the assumption that which it is charged by its suppliers, but cannot recover import duties. abnormal machine malfunction. production is running at normal capacity. In fact, production was unusually low during the period in which the product was made and a further allocation of £820 would be required if fixed overheads were allocated on the basis of actual production. (iv) The advertising costs were incurred whilst trying to find a buyer for the product. No buyer had been found by the end of the accounting period. Required Calculate the cost of this product in accordance with the requirements of IAS2 Inventories.

Explanation / Answer

Abnormal wastage, advertising, storage costs are not part of cost of inventory

Particulars Amount Amount Material 8550 Less: Abnormal waste 2850 5700 Import duty 855 Direct labor costs 5850 Fixed OH 2840 Add: Further allocation 820 3660 Cost of product 16065

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