Valuation of inventory

This query is : Resolved

P Sugumar (Querist)
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28 August 2017 Dear All,

We are running a salt manufacturing company. The process is we harvest the crude salt and the crude salt we wash and centrifuge. Then the centrifuge salt is the raw material for our refinery plant.

Kindly help me to value the inventory of stock on each stage.

Currently we are considering the direct cost of crude salt to value the closing stock of crude salt.
Harvesting cost is Rs. 100 p.mt
Wages is Rs. 50 p.mt
Hence the inventory value of crude salt is 150 p.mt
Indirect cost is Rs. 100/-

But when we transfer this crude salt to washery unit (15% washing losses are there) we should consider the input cost is the direct cost of crude salt or we should add the indirect cost of crude salt also.
ie we should take the input cost is Rs. 150 or Rs. 250 (including i.d cost)
Input crude salt cost - Rs. 150
Washing loss 15% - Rs. 176 ie. (Rs.150*100/85 ie.(100-15))
Direct cost - Rs. 74
Hence the inventory value of washed salt is Rs.250 p.mt
Kindly advice me on this regards.
Thanks & Regards,
Sugumar
Email id: sugu.ksa@gmail.com

sivaram

sivaram (Expert)
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29 August 2017 cost incurred in bringing inventory to present location and condition is added which forms part of direct cost what is this nature of Indirect cost ie Rs 100/= you have given is it necessarily to be incurred in bringing the inventory to present location and condition?

P Sugumar

P Sugumar (Querist)
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29 August 2017 Thanks for your reply. Indirect cost includes the admin and other overheads. Also please note that we are selling crude salt, washed salt as well as refined salt.

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sivaram

sivaram (Expert)
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29 August 2017 no admin and other overheads are not included for valuation

sivaram

sivaram (Expert)
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29 August 2017 no admin and other overheads are not included for valuation

P Sugumar

P Sugumar (Querist)
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29 August 2017 Thank you very much.

sivaram

sivaram (Expert)
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29 August 2017 only direct costs are taken into consideration no indirect costs are taken into account even interest on bank overdraft or cash credit taken for these inventories are excluded since these overheads are one which is not forming part in bringing inventory to the present location and condition