Which of the following costs should be included in the cost of inventories of finished goods under IAS 2?
Answer and explanation
Correct answer: D. Direct labour and a systematic share of production overheads
- Step 1: Cost of inventory comprises costs of purchase, costs of conversion and other costs of bringing the inventory to its present location and condition.
- Step 2: Conversion costs include direct labour and a systematic allocation of production overheads.
- Step 3: Selling, general administration and post-production storage costs are excluded.
Answer
Direct labour and a systematic share of production overheads.
Why not the others: IAS 2 excludes selling costs from cost; they are expensed as incurred. Storage costs after production are excluded, apart from those needed in the production process. These are expensed in the period, not included in inventory cost.
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