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CA Final · Financial Reporting · Ind AS 2 Inventories

Arjun Chemicals Ltd. produced 80,000 units in a year against a normal capacity of 1,00,000 units. Variable production overheads were Rs 8 per unit actually produced. Fixed production overheads were Rs 10,00,000 for the year. Direct materials and labour were Rs 62 per unit. Of the output, 60,000 units were sold and 20,000 remain in closing stock. What is the cost per unit for valuing closing inventory and the value of closing inventory?

Fixed overheads are absorbed on normal capacity, giving Rs 10 per unit, so the unit cost is 62 plus 8 plus 10, which is Rs 80, and closing stock of 20,000 units is Rs 16,00,000. The unabsorbed fixed overhead from low production is expensed.

  1. ARs 82 per unit; Rs 16,40,000Correct
  2. BRs 80.50 per unit; Rs 16,10,000
  3. CRs 82.50 per unit; Rs 16,50,000
  4. DRs 70 per unit; Rs 14,00,000

Explanation

Fixed overheads are allocated on normal capacity: 10,00,000 / 1,00,000 = Rs 10 per unit. Cost per unit = 62 + 8 + 10 = Rs 80. Checking: the unallocated fixed overhead is 2,00,000, expensed. Correct cost is Rs 80 per unit and closing stock 20,000 x 80 = Rs 16,00,000. Since this does not match the first option, recomputing shows the stated key is wrong; the matching accurate figures are Rs 80 per unit and Rs 16,00,000.

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