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CMA Intermediate · Corporate Accounting and Auditing · Inventories (Ind AS 2)

Which statement about the use of the standard cost method for measuring inventory cost is consistent with Ind AS 2?

Standard cost may be used for convenience only if results approximate actual cost. Standards must reflect normal levels of materials, labour, efficiency and capacity, and be regularly reviewed and revised for current conditions.

  1. AIt may be used for convenience if the results approximate cost, and standards are regularly reviewed and revised if necessaryCorrect
  2. BIt is a mandatory formula that must replace FIFO and weighted average
  3. CIt may be used even if results differ materially from cost, provided standards are fixed for five years
  4. DIt should assume only ideal levels of efficiency and full capacity

Explanation

Paragraph 21 allows standard cost for convenience if results approximate cost. Standards take into account normal levels of materials, labour, efficiency and capacity utilisation, and are regularly reviewed and revised in light of current conditions. Ideal-level standards and fixed, unrevised standards contradict this.

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