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SBT Sdn. Bhd. is a fertilizer manufacturer. The following information relate to a finished good item called Amino for the year ended 31 Dec 2020.
SBT Sdn. Bhd. is a fertilizer manufacturer. The following information relate to a finished good item called "Amino" for the year ended 31 Dec 2020. Raw Material A Invoice price Trade discount Import duties Freight & transport Per bag RM10 5% RM1.00 RM1.50 Other Production costs are: Direct Labour Variable overheads Fixed overheads Per bag Note RM3 RM4 ? 1 Note 1: MFRS 102 (para 13) provides that the allocation of fixed production overheads to the costs of conversion should be based on the 'normal capacity of the production facilities. SBT's plant has a normal capacity of 100,000 bags of output and its total fixed production overheads per year is RM1,000,000. In 2020, the production output is 125.000 bags. The selling price of a bag of Amino in year 2020 is RM40. At 31 December 2020, the selling price of Amino drops to RM30 per bag. At the same time, the replacement costs of Raw Material A drop to RM1l per bag. At the end of year 2020, SBT has in stock 100 bags of Raw Material A and 50 bags of Amino Other production costs remain unchanged. Required: a) Should the carrying amount of Raw Material A and Amino be written down? (4 marks) b) Suppose the selling price of Amino drops to RM25 per bag, what will be the value assigned to the inventories
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