The Following Information Relates to the Total Production Costs and Estimates

question 41

Multiple Choice

The following information relates to the total production costs and estimates of realisable value for a line of water pistols produced by Splash Happy Co Ltd. $$\begin{array} { | l | r | r | r | r | } \hline { \text { Item } } & \begin{array} { c } \text { Production cost } \\\$ 000\end{array} & \begin{array} { c } \text { Sales proceeds } \\\$ 000\end{array} & \begin{array} { c } \text { Packaging costs } \\\$ 000\end{array} & \begin{array} { c } \text { Transport costs } \\\$ 000\end{array} \\\hline \text { Big Bang } & 8 & 17 & 5 & 2 \\\hline \text { Little } & 10 & 13 & 1 & 1 \\\hline \text { Splash } & 19 & 25 & 4 & 3\\\hline\end{array}$$ Packaging and transport costs are necessarily incurred in order to be able to sell the inventory.What is the value of the inventory in accordance with IAS 2?

• A)$37 000
• B)$21 000
• C)$39 000
• D)$36 000

---

Definitions:

Marginal Output

The additional quantity of output that is produced by using one more unit of a given input.

Negative Returns

Occurs when a company or investment loses more money than it earns or when costs exceed revenues.

MC Curve

The MC Curve, or Marginal Cost Curve, represents the change in total cost that arises when the quantity produced is incremented by one unit. It is crucial in determining the optimum production level.

AVC Curve

The Average Variable Cost curve depicts the per-unit variable cost of production as a function of total output.