CIMA BA2 · Chapter 4 · Question 6 of 8
Which of the following is an argument in favour of using ABSORPTION costing for inventory valuation?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) It is consistent with the inventory valuation required for external financial reporting under IAS 2 Inventories
Explanation
IAS 2 requires inventories to include a systematic allocation of fixed production overheads, which is what absorption costing does. The other statements are arguments for marginal costing: it avoids arbitrary absorption, its profit is not affected by building inventory, and it highlights contribution.
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