Product costing helps ascertain the values of closing stock for the preparation of final accounts.

Product costing helps ascertain the values of closing stock for the preparation of final accounts.

• A. False
• B. Not necessary
• C. True
• D. Only for tax calculation

Answer: (C)

Product costing establishes the cost per unit of goods produced, and that cost is used to value the inventory on hand at period end. To prepare final accounts, you need the closing stock to be shown at its cost, not its selling price, and you determine that cost by allocating material, labour, and overhead costs to the units in stock. The total per-unit cost times the quantity in closing stock gives the closing stock value, which appears as an asset on the balance sheet and also affects the cost of goods sold in the income statement (through the calculation of cost of goods available for sale minus closing stock). Whether using absorption or marginal costing, the closing stock is valued from the costing information, so this practice is essential for accurate final accounts. The other options don’t fit because closing stock valuation is indeed needed for final accounts, and not just for tax purposes or considered unnecessary.

Product costing establishes the cost per unit of goods produced, and that cost is used to value the inventory on hand at period end. To prepare final accounts, you need the closing stock to be shown at its cost, not its selling price, and you determine that cost by allocating material, labour, and overhead costs to the units in stock. The total per-unit cost times the quantity in closing stock gives the closing stock value, which appears as an asset on the balance sheet and also affects the cost of goods sold in the income statement (through the calculation of cost of goods available for sale minus closing stock). Whether using absorption or marginal costing, the closing stock is valued from the costing information, so this practice is essential for accurate final accounts. The other options don’t fit because closing stock valuation is indeed needed for final accounts, and not just for tax purposes or considered unnecessary.