Question

Which of 'the following statements summarises the recommendations of SSAP 9 as to the normal treatment of overhead cost for finished goods stock valuation?

• A. Include only variable production overheads.
• B. Include a share of all production overheads.
• C. Include a share of variable overheads (production and non-production).
• D. Include a share of all production and non-production overheads.

Answer 1

The correct option is B Include a share of all production overheads.

The accounting for stock is guided by SSAP 9 which includes stock of raw material, work in progress and finished goods. SSAP 9 defines that stocks are valued at cost or realizable value whichever is lower.

The cost of finished goods will be cost of direct material, direct labor and expenses along with the factory overheads absorbed.

SSAP9 defines the cost as the expenditure which has been incurred in the normal course of business in bringing the product to its present location and condition.