Under IAS 2, how are fixed production overheads normally allocated to inventory?
Correct answer: C. Using normal operating production capacity
- A. Using the highest possible production level
- B. Using the current selling price of goods
- C. Using normal operating production capacity
- D. Using the quantity sold during the period
Explanation
Fixed production overhead is allocated using the normal capacity of production facilities. This prevents low production or idle capacity from inflating the cost assigned to each unit.
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About Inventory Valuation
Inventory valuation determines the cost of unsold goods and its effect on cost of sales and profit. The work covers inventory counts, included costs, FIFO and weighted-average costing, and the rule that inventory is reported at the lower of cost and net realisable value, not simply at its expected selling price.
Practise Inventory Valuation
34 free Inventory Valuation MCQs from Accounting, each with the correct answer and an explanation. Unlimited attempts, no account needed.
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More Inventory Valuation questions
Which item is normally included in the cost of inventory under IAS 2?
Specific identification is most appropriate for inventory consisting of:
If ending inventory is understated by Rs. 10,000, assuming no other errors, what is the effect on current-year profit?
A loss caused by abnormal wastage of materials during production is generally treated as:
When inventory is written down to net realisable value, the resulting loss is generally recognized as:
If the net realisable value of inventory later increases, an earlier write-down under IAS 2 may be: