Question：An accountant is proposing to include overheads in closing inventory.
Which of the following statements correctly describes the treatment of overheads?
A. The treatment is acceptable provided only production related overheads are included using a normal basis of activity to calculate the absorption rates.
B. Overheads must not be included.
C. Only under recoveries of overheads may be included.
D. Overheads may be included provided the absorption rates reflect normal activity levels.
The correct answer is:The treatment is acceptable provided only production related overheads are included using a normal basis of activity to calculate the absorption rates.
Only production overheads can be included in value of inventory. Under-recoveries will be charged to the I and E account.
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