PRC-1 · Chapter 7 · Question 19 of 100
According to IAS 2, how should unallocated fixed production overheads be treated when actual production is abnormally low?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) They should be recognized as an expense in the period in which they are incurred.
Explanation
To prevent inventory from being overvalued when production is abnormally low, fixed overheads must be allocated based on normal capacity. The unallocated portion resulting from low production must be expensed immediately.
More IAS 2: Inventories MCQs
- Q21A business bought 30 cars. Under which of the following circumstances would these cars be classified as 'Inventory'?
- Q22Which of the following definitions correctly describes 'Prime Cost'?
- Q23When a business records a write-down of inventory to Net Realizable Value, where is this expense initially recognized?
- Q24If an entity accidentally overstates its closing inventory value, what is the direct impact on the financial statements for that year?
- Q25Which of the following situations dictates that raw materials should NOT be written down below their cost?