Which cost is normally excluded from inventory cost because it does not bring inventory to its present location and condition?
Correct answer: C. General administrative overhead unrelated to production
- A. Direct labour used in production
- B. Conversion overhead allocated to production
- C. General administrative overhead unrelated to production
- D. Freight paid to transport purchased goods
Explanation
General administrative overhead that does not contribute to bringing inventory to its present condition is excluded from inventory cost. Direct labour, relevant production overhead and incoming freight can form part of inventory cost.
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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.
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