Kirti Ltd. is in the business of manufacturing computers. During the year ended 31 st March, 2024, the company manufactured 550 computers. It has…

CA Intermediate · Advanced Accounting · RTP · September 2024
Kirti Ltd. is in the business of manufacturing computers. During the year ended 31 st March, 2024, the company manufactured 550 computers. It has the policy of valuing finished stock of goods at a standard cost of 1.8 lakh per computer. The details of the costs are as under: (₹ in lakh) Raw material consumed 400 Direct Labour 250 Variable production overheads 150 Fixed production overheads (including interest of 100 lakh) 290 Compute the value cost per computer for the purpose of closing stock.

Suggested Answer and Working Notes:

As per para 9 of AS 2 ‘Valuation of Inventories’, for inclusion in the cost of inventory, allocation of fixed production overheads is based on the normal capacity of the production facilities. In this, case finished stock has been valued at a standard cost of 1.8 lakh per computer which incidentally synchronizes with the value computed on the basis of absorption costing as under: (₹ in lakh) Materials 400 Direct Labour 250 Variable production overheads 150 Fixed production overheads 290 Less: Interest (100) Total cost 190 990 Number of computers produced = 550 computers (Assumed to be normal production) Cost per computer 990lakh / 550 computers = 1.80 lakh

Topics: Applicability of AS

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