Concept of valuing inventories

Reference no: EM13163151

Background:

Mr David Buttoneer the owner operator of Buttons by David Pty Ltd. runs a number of button lines. His favourite is a cut stag-horn button that has gold filigree. Using a variable costing approach, the revenues and costs per 100 buttons is:

1067_Concept of valuing Inventories.png

Required:

However, the stag-horn button line is not popular with the customers and generates a substantial loss. Currently, the company has 30,000 stag horn buttons in inventory.

As the External Auditor and using a standard format memo (i.e. a short report of ½ to 1½ pages) please explain to Mr David Buttoneer:

1) The concept of valuing Inventories at the "Lower of Cost or Market".

2) The estimated "full absorption cost" of manufacturing 100 stag horn buttons, and

3) The appropriate value for the stag horn buttons inventory in total and per 100 buttons - show calculations to justify your answer.

Reference no: EM13163151

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