The following is an extract from the Interbrew 2010 Annual Report:

Inventories Inventories are valued at the lower of cost and net realizable value. Cost includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

The weighted average method is used in assigning the cost of inventories.

The cost of finished products and work in progress comprises raw materials, other production materials, direct labor, other direct cost and an allocation of fixed and variable overhead based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated completion and selling costs.

Discuss the possible effects on profits if the company did not use normal operating activity. Explain an alternative definition for net realisable value and discuss the criterion to be applied when making a policy choice.