PRC-1 · Chapter 7 · Question 54 of 100
How should fixed production overheads be allocated to inventory if the actual production level is abnormally low during a period?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Based on the normal capacity of the production facilities.
Explanation
IAS 2 requires fixed production overheads to be allocated based on normal capacity. In periods of abnormally low production, unallocated overheads are recognized as an immediate expense so that inventory is not overvalued.
More IAS 2: Inventories MCQs
- Q56On 31 December 2015, a company has partly-completed inventory with a cost to date of Rs. 26,300. It is expected that further costs of Rs…
- Q57Using the data from the previous question (Cost = Rs. 26,300, NRV = Rs. 36,600), at what value should this inventory be reported in the…
- Q58Which of the following is NOT a required disclosure for inventories under IAS 2?
- Q59During a period of rising prices (inflation), which inventory valuation method generally results in a higher closing inventory value and a…
- Q60A company uses a perpetual inventory system. Which TWO journal entries are simultaneously required to record a credit sales transaction?