Question
Fenmore Furniture produced below normal capacity. Cost inventory with fixed overhead at normal capacity, expense the unabsorbed overhead, write damaged stock down to NRV and prepare the income statement.
Statements in this challenge
- Cost per ChairNumeric Answer
- Unabsorbed OverheadNumeric Answer
- Closing InventoryNumeric Answer
- Income StatementIncome Statement
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 2 — Inventories
Cost includes purchase price, import duties, transport and handling, less trade discounts and rebates. The cost formula — FIFO or weighted average — is then applied consistently to inventories of a similar nature and use.
Common mistakes
- Recomputing the weighted average only at the period end when a moving average is required under a perpetual system.
- Including selling costs or storage of finished goods in inventory cost.
- Switching cost formula between periods without treating it as a change of accounting policy.
IFRS vs US GAAP: US GAAP permits LIFO; IAS 2 prohibits it.
Further readingIAS 2: costing methods and NRV