Titan Steelworks is valuing its year-end inventory of steel beams. According to IAS 2 Inventories, which TWO of the following costs should be INCLUDED in the cost of inventory?

Answer options:

Direct labor costs incurred in the manufacturing process.

Storage costs of finished steel beams awaiting sale.

Fixed production overheads allocated based on normal capacity.

Selling and distribution costs.

How to approach this question

Recall the rule from IAS 2: Inventory is valued at the lower of cost and NRV. Cost includes costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present location and condition.

Full Answer

Under IAS 2, the cost of inventory includes all costs of purchase, costs of conversion (direct labor and allocated fixed/variable production overheads), and other costs incurred in bringing the inventory to its present location and condition. Storage costs of finished goods and selling costs are explicitly excluded and must be expensed.

Common mistakes

Including storage costs of finished goods in the inventory valuation.

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