An entity starts production of a new product and after selling 2,000 units has closing inventory of 5,000 units.Normal operating capacity is 8000 units.Direct material costs are €3 per unit,direct labour costs are €2 per unit & variable overhead is €1 per unit.Fixed production overhead is €40,000,sales overhead is €30,000 & general overhead is €20,000.What is the value of closing inventory under IAS 2?
A)€72,860
B)€67,500
C)€58,571
D)€55,000

Question

Quizplus · Accepted Answer

Under IAS 2, inventory is valued at the cost of production, which includes direct materials, direct labor, and a portion of fixed production overhead. The cost per unit is €3 (materials) + €2 (labor) + €1 (variable overhead) + (€40,000 fixed overhead / 8,000 normal capacity) = €10 per unit. The closing inventory of 5,000 units is valued at 5,000 units * €10 = €50,000.

An Entity Starts Production of a New Product and After