SR Limited is a manufacturing company and engaged in the production of Finished goods 'MP' for which Raw material 'RP' is required. The company…

Calculation of cost for closing inventory Particulars Unit (₹) Total (₹) Cost of Material Consumed (40,400 x 12) 12 4,84,800 Direct Labour 8 3,23,200 Fixed Overhead (3,15,000 x 40,400) / 45,000 7 2,82,800 Cost of Production 27 10,90,800 Cost of closing inventory per unit (10,90,800/40,400) 27 Net Realisable Value per unit 22 Since net realisable value is less than cost, closing inventory will be valued at 22. As NRV of the MP (finished goods) is less than its cost, relevant raw materials will be valued at replacement cost i.e.11.50. Therefore, value of closing inventory: MP (finished goods) (4,200 x 22) ₹ 92,400 Raw Materials RP (4,000 x 11.50) ₹ 46,000 Working Notes: 1. Units produced (actual) Production = Sales + Closing FG – Opening FG = 40,200 + 4,200 - 4,000 = 40,400 units. 2. Raw material (RP) movement (units) Total RP available = Opening RP + Purchases = 4,400 + 40,000 = 44,400 units. RP consumed = 44,400 – Closing RP (4,000) = 40,400 units. (Thus 1 unit RP is used per 1 unit MP.) 3. Cost per unit of RP (weighted average) Total cost of RP = Opening value - 52,800 + Purchases - 4,80,000 = 5,32,800. Cost per unit RP = 5,32,800 ÷ 44,400 = 12.00 per unit.