ExpertMedium2 marksShort Answer
ACCA · Question 04 · Recording Transactions: Inventory
Section A
CircuitWorks manufactures specialized electronic components. At year-end, they have 1,000 units of 'Component X' in inventory. The manufacturing cost was $15 per unit. Due to a recent technological shift, these components can now only be sold for $12 per unit, and CircuitWorks must pay a $2 per unit packaging and delivery cost to finalize the sale.
What is the total value of 'Component X' that should be included in the closing inventory? (Enter the number only, no dollar sign)
Section A
CircuitWorks manufactures specialized electronic components. At year-end, they have 1,000 units of 'Component X' in inventory. The manufacturing cost was $15 per unit. Due to a recent technological shift, these components can now only be sold for $12 per unit, and CircuitWorks must pay a $2 per unit packaging and delivery cost to finalize the sale.
What is the total value of 'Component X' that should be included in the closing inventory? (Enter the number only, no dollar sign)
How to approach this question
Calculate Cost and Net Realizable Value (NRV) per unit. Inventory is valued at the lower of Cost and NRV. Multiply the lower value by the number of units.
Full Answer
Cost per unit = $15.
NRV per unit = Selling price ($12) - Selling costs ($2) = $10.
Inventory must be valued at the lower of cost and NRV. Therefore, value per unit = $10.
Total inventory value = 1,000 units × $10 = $10,000.
Common mistakes
Valuing at cost ($15,000) or forgetting to deduct the selling costs from the selling price ($12,000).
Practice the full ACCA FA — Financial Accounting Practice Exam 5
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