The following information relates to questions 1 to 3:
The inventory records component BXY for the month of January showed:
Receipts Value Issues
$
Opening inventory 500 1,250
4 January 1,000 2,750
11January 1,600 4,480
18January 1,200 3,480
19January 2,100
25January 1,500 4,350
31January 1,800
1. Using the FIFO method of pricing issues, the cost of issues during the month was:
a) $11,250
b) $10,800
c) $10,850
d) $11,300
2. Using the LIFO method of pricing issues, what is the value of inventory at 31 January?
a) $4,100
b) $3,720
c) $5,120
d) $3,950
3. Using the AVCO method of pricing, at what price would the issue on 31 January be made?
(calculate two decimal places)
a) $3.00
b) $2.95
c) $2.90
d) $2.83
The following information relates to questions 4 and 5:
Turner has the following inventory record;
Date Units Cost
1 March Opening inventory 100units At $3.00/unit
3 March Receipt 200units At $3.50/unit
8 March Issue 250units
15 March Receipt 300 units At$3.20/unit
17 March Receipt 200units At $3.30/unit
21 March Issue 500 units
23 March Receipt 450 units At$3.10/unit
27 March Issue 350 units
4. What is the valuation of closing inventory if LIFO is used?
a) $460
b) $465
c) $467
d) $469
5. What is the valuation of issue using the weighted averaged method of inventory
valuation at each issue?
a) $3,248
b) $3,548
c) $3,715
d) $4,015
The following information relates to questions 6 and 7:
Date Units Unit price ($) Value ($)
1 Jan 20X1 Balance b/f 100 5.00 500.00
3 Mar 20X1 Issue 40
4 Jun 20X1 Receipt 50 5.50 275.00
6 Jun 20X1 Receipt 50 6.00 300.00
9 Sep 20X1 Issue 70
6. If the first-in, first-out method of pricing had been used the value of the issue on 9
September 20X1 would have been:
a) $350
b) $355
c) $395
d) $420
7. If the last-in, first-out method of pricing had been used the value of issue on 9 September
20X1 would have been:
a) $350
b) $395
c) $410
d) $420
8. A company uses the first-in, first-out (FIFO) method to price issues of raw materials to
production and to value its closing inventory. Which of the following statements best
describes the first-in, first-out method?
a) The last materials received will be the first issued to production
b) The first materials issued will be priced at the cost of the most recently received materials
c) The last materials issued will be those that were most recently received
d) The first materials issued will be priced at the cost of the earliest goods still in inventory
9. If a company is using the first-in, first-out method of material issues at a time when
material prices are rising this will mean which of the following?
a) Production costs will be lower and profits will be higher than if the last-in, first-out method had
been used
b) Production costs will be higher and profits will be lower than if the last-in, first-out method had
been used
c) Production costs will be lower and profits will be lower than if the last-in, first-out method had been
used
d) Production costs will be higher and profits will be higher than if the last-in, first-out method had
been used
The following information relates to questions 10 to 12:
The following information relates to raw material ‘X 100’
Usage per month: 2,000 maximums
1,800 minimums
Delivery period: 2 months maximum
1 month minimum
Re-order quantity 3,000 units
10. The re-order level would calculate as:
a) 4,200
b) 4,000
c) 3,700
d) 4,400
11. Using the information above, the maximum inventory control level would be calculated
as:
a) 4,500
b) 5,100
c) 5,000
d) 5,200
12. The minimum inventory control level would be calculated as:
a) 1,300
b) 1,325
c) 1,150
d) 1,250
13. When charging direct material cost to a job or process, the details would be taken from
which document?
a) Purchase requisition
b) Material requisition
c) Goods received note
d) Purchase order
Q-*: A company uses the economic order quantity formula (EOQ) to establish its optimal re-
order quantity for its single raw material. The following date relates to the inventory
costs:
Purchase price $15 per item
Carriage costs $50 per order
Ordering costs $5 per order
Storage costs 10% of purchase price plus $0.20 per unit per annum
Annual demand is 4,000 units.
What is the EOQ to the nearest whole unit?
a) 153 units
b) 170 units
c) 485 units
d) 509 units
14. Hill Company wishes to minimize its inventory costs. At the moment its re-order
quantity is 1,000 units. Order costs are $10 per order and holding costs are $0.10 per
unit per month. Hill company estimates annual demand to be 15,000 units. What is the
optimal re-order quantity (to the nearest 100 units)?
a) 500 units
b) 1,000 units
c) 1,200 units
d) 1,700 units
15. A company uses two very similar types of fixing bracket, Z99 and Z100. The brackets are
purchased from an outside supplier. When the company undertakes an inventory check
it finds some differences as shown below:
Product Inventory Inventory
record count
Z99 100 79
Z100 80 101
What is the most likely reason for differences between the inventory records and the
inventory count for each bracket?
a) Production was higher than expected
b) Some brackets were damaged during production
c) A customer asked the company to supply some extra brackets of both types
d) Some brackets were put in the incorrect storage racks
16. Which of the following costs would needed in order to calculate the economic order
quantity?
1. The cost of storing materials
2. The cost of interest in financing materials
3. The cost of ordering materials
4. The cost of insuring materials
a) Items 1 and 2 only
b) Items 3 and 4 only
c) Items 1, 3 and 4 only
d) Items 1, 2, 3 and 4
17. If a company wanted to ensure that its cost of production included the most recent cost
for material, it would use:
a) Standard cost
b) First-in, first-out(FIFO)
c) Weighted average cost
d) Last-in, first-out (LIFO)
18. Failure to record inventory returned to store will result in which of the following if a
physical stock take were not undertaken?
Inventory quantity Production costs
a) Higher than shown on record card Higher than it should be
b) Lower than shown on record card Higher than it should be
c) Lower than shown on record card Lower than it should be
d) Higher than shown on record card Lower than it should be
19. The following are statements relating to raw material pricing in a situation where raw
material prices are rising consistently:
1. Production cost will be lower using weighted average pricing rather than LIFO
2. Profit will be higher using LIFO pricing rather than FIFO
3. Inventory values will be lower using FIFO pricing rather than weighted average
Are the statements true or false?
a) Statement 1 is true but statements 2 and 3 are false
b) Statements 1 and 2 are true bust statement 3 is false
c) Statements 1 and 3 are true but statement 2 is false
d) Statements 2 and 3 are true but statement 1 is false
20. A company orders a particular raw material in order quantities of 250 units. No safety
inventory in held, the cost of holding inventory is $3 per unit per annum and the annual
demand is 2,500 units. What is the total annual stockholding cost of the material?
a) $375
b) $750
c) $3,750
d) $7,500
21. Which of the following is NOT relevant to the calculation of the economic order quantity
of a raw material?
a) Ordering cost
b) Purchase price
c) Stockholding cost
d) Usage
22. The order quantity of a raw material is 2,000 kg. Safety inventory of 1,200 kg is held.
The cost of holding the raw material is $1.20 per kg per annum. What is the total annual
stockholding cost of the raw material?
a) $1,200
b) $1,920
c) $2,640
d) $3,840
23. The following documents are used within a cost accounting system
1. Invoice from supplier
2. Purchase order
3. Purchase requisition
4. Stores requisition
Which two of the documents are matched with the goods received note in the buying
process?
a) 1 and 2
b) 1 and 4
c) 2 and 3
d) 3 and 4
24. The following transaction relate to a raw material for a period
Day Transaction Units Total value
($)
1. Balance b/f 100 500
2. Issue 40
3. Receipt 50 275
4. Receipt 50 300
5. Issue 70
The periodic weighted average method is used to price material issues. What is the value
of the issue of Day 5?
a) $376.25
b) $382.81
c) $402.50
d) $410.00
The following information relates to questions 25 and 26:
The re-order level of Material M is 1,600 kg and the order quantity is 1,400 kg.
Lead times and usage are as follows:
Lead time: Minimum 1 WEek
Average 1.5 weeks
Maximum 2 Weeks
Usage: Minimum 600 kg per week
Average 700 kg per week
Maximum 800 kg per week
25. What is the maximum inventory control level of Material M?
a) 1,400kg
b) 1,950kg
c) 2,400kg
d) 3,000kg
26. What is the minimum inventory control level of Material M?
a) Nil
b) 350 kg
c) 550 kg
d) 1,000 kg
27. Which of the following statements is correct?
a) A stores ledger account will be updated from a goods received note only
b) A stores requisition will only detail the type of product required by a customer
c) The terms ‘lead time’ is best used to describe the time between receiving an order and paying for it
d) To make an issue from stores authorization should be required
28. The following relate to the management of raw materials
1. Holding cost per unit of inventory would increase
2. The economic order quantity would decrease
3. Average inventory levels would increase
4. Total ordering costs would decrease
Which of the above would result from the introduction to buffer (safety) inventory?
a) 3 only
b) 2 and 3 only
c) 2, 3 and 4 only
d) 1, 2, 3 and 4
29. The following statements describe the effect of raw material pricing policy in situation
where prices are rising consistently
1. Inventory values will be higher using last-in first-out (LIFO) rather than weighted average
2. Profit will be lower using weighted average rather than first-in first-out(FIFO)
Are the statements true or false?
Statement 1 Statement 2
a) True True
b) False False
c) True False
d) False True
30. What is the purpose of calculating an economic order quantity (EOQ) for a raw
material?
a) To minimize the stockholding quantity of the material
b) To minimize the stockholding costs of the material
c) To minimize the total cost of purchasing and storing the material
d) To enable the re-order level of the material to be established
e) To minimize annual total cost of inventory.
31. The following documents are used in accounting for raw materials;
1. Goods received note
2. Materials returned note
3. Materials requisition note
4. Delivery note
Which of the documents may be used to record raw materials sent back to stores from
production?
a) 1 and 2
b) 1 and 4
c) 2 only
d) 2 and 3
32. Material M is used by a manufacturer. Inventory of Material M at 1 May was valued at a
cost of $3,302 (260 kg at $12.70 per kg), 500 kg were purchased on 7 May for $6,500.
410 kg of Material M used in production during the month. The LIFO method is applied
at the end of each month. What is the cost accounting entry for the issue of Material M
during the month?
Debit Credit
a) Material inventory $5,252 Work-in-progress $5,252
b) Work-in-progress $5,252 Material inventory $5,252
c) Material inventory $5,330 Work-in-progress $5,330
d) Work-in-progress $5,330 Material inventory $5,330
33. How is the re-order level calculated if stock-outs are to be avoided?
a) Maximum usage x Maximum lead time
b) Maximum usage x Minimum lead time
c) Minimum usage x Maximum lead time
d) Minimum usage x Minimum lead time
34. At the beginning of a period, 150 units of a component, which had been purchased at
$6.40 per unit, were in inventory. During the period, 290 units of the component were
purchased (160 units at $6.50 followed by 130 units at $6.90). 315 units of the component
were issued to production at then of the period when the cost of the 125 units remaining
was $800. Which method is being used to price the issues of the component?
a) First-in first-out
b) Last-in first-out
c) Periodic weighted average
d) Weighted average
35. Which of the following are relevant in the calculation of the maximum inventory control
level?
1. Maximum lead time
2. Minimum usage
3. Reorder level
4. Reorder quantity
a) 1 and 2
b) 3 and 4
c) 1, 3 and 4
d) 2, 3 and 4
36. The following statements relate to raw material pricing: Profit will be lower using FIFO
rather than LIFO.
A True
B False
37. The following statement is one of the features of first-in first-out (FIFO). Prices of the
last batch are used for pricing the issues, until it is exhausted.
A True
B False
38. The purpose of calculating an economic order quantity (EOQ) for a raw material is to
minimise the inventory holding quantity of the material.
A True
B False (Paper T4 December 2005)
39. In an integrated cost and financial accounting system what would be the entry to record
direct labour costs being charged to production?
Debit Credit
a) Financial ledger control Work-in-progress
b) Production overhead Wages control
c) Finished goods Work-in-progress
d) Work-in-progress Wages control
40. The following statement describes the effect of raw material pricing policy in a situation
where prices are rising consistently: inventory values will be higher using last-in first-
out (LIFO) rather than weighted average.
A True
B False (Paper T4 December 2005)
41. The first-in first-out (FIFO) method is used for valuing raw material receipts in to
inventory.
A True
B False
42. Wastage of a raw material during a manufacturing process is 20% of input quantity.
What input quantity of raw material is required per kg of output?
a) 0·8 kg
b) 1·2 kg
c) 1·25 kg
d) 1·33 kg
43. In the context of inventory control the maximum inventory control level is the level
below which inventory should not fall if usage is at the maximum expected.
A True
B False
44. The re-order level of Material M is 3,000 kg and the order quantity is 2,000 kg. Lead
times and usage are as follows:
Lead Time:
Minimum 2 Week
Average 2.5 weeks
Maximum 3 weeks
Usage:
Minimum 800 kg per week
Average 900 kg per week
Maximum 1000 kg per week
What is the maximum inventory control level of Material M?
a) 2,000 kg
b) 2,750 kg
c) 3,400 kg
d) 2,500 kg
45. The following transactions relate to a raw material for a period:
Day Transaction Units value
Total ($)
1 Balance b/f 200 1,000
3 Receipt 100 550
4 Issue 80
6 Receipt 100 600
7 Issue 140
The periodic weighted average method is used to price material issues. What is the value
of the issue on day 4?
a) $413.33
b) $430
c) $700
d) $752.50
