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When warehouse costs are reapportioned to production cost centers, the resulting product cost includes storage expenses. Doesn’t this conflict with IAS 2’s inventory costing principles?
Accounting Standards are relevant for financial accounting but not for management accounting (as explained in the first in our series of lectures).
Sir,
I understand that accounting standards, particularly IAS 2, primarily pertain to financial accounting. However, our textbook stated that ‘absorption costing allows businesses to make decisions about pricing policies and value its inventory in accordance with IAS 2.’This statement raised a question for me, as it seems to conflict with the treatment of storage costs under absorption costing when it comes to inventory valuation. Specifically, the textbook implies a direct correlation between absorption costing and IAS 2 for inventory, but storage costs of finished goods, which are part of inventory management, are typically excluded from product costs under absorption costing and treated as period expenses.
Therefore, I was seeking clarification on how absorption costing, when used for inventory valuation, aligns with IAS 2 given this apparent discrepancy.
Two things:
Firstly absorption costing is more in line with IAS2 because marginal costing ignores fixed costs whereas absorption costing doesnt.
Secondly, warehousing costs of raw materials should be included in inventory valuation for financial accounting per IAS2.
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