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SR Ltd makes finished good MP from raw material RP. Cost of MP is ₹27 per unit (material ₹12 + labour ₹8 + fixed overhead ₹7). Selling price of MP is ₹22 per unit; replacement cost of RP is ₹11.50 per unit. Closing stock: MP 4,200 units, RP 4,000 units. What is the value of the closing inventory of raw material RP?
A₹48,000
B₹46,000
C₹44,000
D₹50,000
Answer & Solution
Correct answer: B. ₹46,000
1. Because MP sells below cost, RP is valued at replacement cost ₹11.50 per unit.
2. Closing RP units = 4,000.
3. Value = 4,000 × ₹11.50 = ₹46,000.
_Source: ICAI BoS CA Intermediate Paper 1 (Advanced Accounting), Sept 2025 — Q.1(b), AS 2 Valuation of Inventories._
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