BACHELOR OF BUSINESS ADMINISTRATION

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BUSINESS ADMINISTRATION

FINANCIAL ACCOUNTING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Z COMPANY incurred the following costs during the current year:Cost of purchases based on invoices 5, 000, 000Trade discount already deducted from invoices 500, 000Import duties 400, 000Freight and insurance on purchases 600, 000Other handling costs on imports 100, 000Commission paid to agents for arranging imports 200, 000Sales commission paid to sales agents 300, 000Salaries of accounting department 1, 000, 000After sales warranty costs 250, 000What is the total cost of purchases?
A
6, 300, 000
B
5, 800, 000
C
6, 100, 000
D
6, 600, 000
Explanation: 

Detailed explanation-1: -IAS 2 says that you should allocate the fixed production overheads to the cost of inventories based on normal capacity of the production facilities .

Detailed explanation-2: -The costs that can be included in an inventory valuation are direct labor, direct materials, factory overhead, freight in, handling fees, and import duties.

Detailed explanation-3: -Answer and Explanation: The correct answer is (c) Salaries of the sales staff (sales department shares the building with factory supervisor). Conversion costs include both costs of direct labor and manufacturing overhead. These are manufacturing costs incurred to transform raw materials into finished goods.

Detailed explanation-4: -The cost of inventories shall comprise all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition.

There is 1 question to complete.
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