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Unit production cost for Dingy is 46. Production Overheads is 15/unit. currently goods can only be sold if modified and the per unit cost of modification is 17. The selling price of the modified dingy is 80/unit and selling overheads are 10% of selling price.
at what value shd the UNMODIFIED dingy be reported in SOFP?
—————————————————————————————–My answer:
total cost is 46+15=61 .. this is the cost of unmodified dingy which shd be reported in SOFP.
please tell me if this is correct
It should be valued at the lower of cost and net realisable value.
The cost is as you have written – 46 + 15 = 61.
The NRV is 80 – 17 – 8 = 55.
It should therefore be valued at 55.
but it can only be sold at 80 if modified..and the question is asking for the value of unmodified dingy….
Yes, but inventory should always be valued at the lower of cost and NRV.
This dingy can only be sold if it modified. The only alternative would be to scrap it and get 0, but obviously it would be better to pay to modify it, pay selling expenses, and be able to sell it.
If we could sell it unmodified, then the answer could well be different, but the question says that the only way we can sell it is to modify it.Sir I though 15 was already in the cost of production. which 46 will be reported in the SOFP.I dont understand…
I understand what you mean, but the way the question is worded suggests that the $15 overheads are addition to the $46.
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