Reference no: EM131812122
As a result of a downturn in the economy, Optiplex Corporation has excess productive capacity. On January 1, 2010, Optiplex signed a special order contract to manufacture custom-design generators for a new customer. The customer requests that the generators be ready for pick up by March 15, 2010 and guarantees it will take possession of the generators by April 15, 2010. Optiplex incurred the following direct costs related to the custom-design generators:
Cost to complete the design of the generators $ 3,000
Purchase price for materials and parts 80,000
Transportation cost to get materials and parts to manufacturing facility 2,000
Direct labor (10,000 labor hours at $12 per hour) 120,000
Cost to store finished product (from March 15 to March 30) 2,000
Because of the company's inexperience in manufacturing generators of this design, the cost of materials and parts included an abnormal amount of waste totaling $5,000.
In addition to direct costs, Optiplex applies variable and fixed overhead to inventory using predetermined rates. The variable overhead rate is $2 per direct labor hour. The fixed overhead rate based on a normal level of production is $6 per direct labor hour. Given the decreased level of production expected in 2010, Optiplex estimates a fixed overhead application rate of $9 per direct labor hour in 2010.
Required: Determine the amount at which the inventory of custom-design generators should be reported on Optiplex Corporation's March 30, 2010 balance sheet under IFRS.
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