Formulas

Question 1

Cost of inventories (And, which should not be included)

Answer 1

= Costs of purchase
\+ Cost of conversion
\+ Other costs incurred in bringing the inventory to the present location and condition, do not include:
* Abnormal amounts of waste
* Storage costs
* Administrative overhead
* Selling costs

Question 2

Costs of purchase

Answer 2

+ Import duties and other non-recoverable taxes
+ Transport and handling costs
+ Other costs directly attributable to acquisition
-Trade discounts or rebates

Question 3

Cost of conversion

Answer 3

+ Costs directly related to the units of production, e.g. direct labor
+ Systematic allocation of fixed and variable production overheads that are incurred in converting materials to finished goods
+ The allocation of fixed production overheads is based on the normal capacity of the production facilities

Question 4

Net realizable value (NRV)

Answer 4

= Estimated selling price in the ordinary course of business
–estimated costs of completion
–estimated costs necessary to make the sale