Mirchawala’s Hub of Accountancy:
MA1: Management Information :
Accounting for Material:
Question#1:
Which of the following statements would be TRUE if raw materials prices were rising?
A. Under LIFO production costs would be lower than under FIFO
B. FIFO would give a lower profit figure than LIFO
C. LIFO would give a lower closing inventory valuation than FIFO
D. LIFO would give a higher closing inventory valuation than FIFO
Question#2:
ABC Co made the following purchases of material X:
Units Price ($)
1 January 20X1 500 1.50
1 February 20X1 1,000 2.00
1 March 20X1 750 2.50
1 April 20X1 500 1.50
1 May 20X1 1,500 2.00
1 June 20X1 750 3.00
On 1 July 20X1 the company used 2,000 units of material X.
Using the first-in first-out (FIFO) method of inventory valuation, what is the value of the 2,000 units of
inventory used on 1 July 20X1?
A. $4,000
B. $6,000
C. $4,750
D. $3,000
Question#3:
The following information is provided for component X:
(1)2,400 units are in the stores
(2)6,700 units are on order
(3)1,600 units are scheduled for use
What is the amount of 'free' inventory?
A. 800 units
B. 2,400 units
C. 10,700 units
D. 7,500 units
Question#4:
In a cost accounting system, what would be the entry for the issue of INDIRECT materials to a
production cost centre?
A. Dr Work in progress account Cr Raw materials account
B. Dr Raw materials account Cr Production overhead account
C. Dr Raw materials account Cr Work in progress account
D. Dr Production overhead account Cr Raw materials account
Question#5:
Each unit of product P requires 1.6 kg of material M. A purchase order is to be placed for material
M sufficient to provide for the manufacture of product P for the next two months and for 520 kg
or material M to remain in inventory at the end of month 2.
460 kg of material M is in inventory at the beginning of month 1 and manufacture of product P will be as
follows:
From the desk of Sir Ahmed Shafi: Page 1
Mirchawala’s Hub of Accountancy:
Month 1 400 units
Month 2 560 units
What is the size of the purchase order that must be placed for material M?
A. 1,596kg
B. 1,476 kg
C. 1,536 kg
D. 1,480 kg
Question#6:
A company has 3,050 litres of a raw material in inventory. It has a further 2,275 litres on order from its
supplier. 750 litres will be needed for a special job that has already been agreed with the customer.
What is the free inventory?
A. 1,525 litres
B. 3,050 litres
C. 4,575 litres
D. 6,075 litre
Question#7:
The following data refers to a particular inventory item:
Receipts (units) Issues (units) Total cost ($)
Day 1 200 1,100
Day 3 140
Day 6 150 840
Day 7 140
The weighted average method is used to value inventory issues. A revised weighted average price
is calculated after each purchase.
At what cost per unit (to two decimal places) will the issue on day 7 be made?
A. $5.60
B. $5.57
C. $5.54
D. $5.56
Question#8:
The following information is provided for component Z:
(1)2,000 units are in the stores
(2)2,700 units are on order
(3)1,600 units are scheduled for use
What is the amount of 'free' inventory?
A. 2,000 units
B. 3,600 units
C. 4,700 units
D. 3,100 units
Question#9:
Which statement correctly describes the LIFO method of pricing issues of stores items from inventory?
A. All items of inventory are valued at the current price
B. It uses the price of the newest items before older items
C. It is based on the average cost of the items
D. It uses the price of the oldest items before newer items
From the desk of Sir Ahmed Shafi: Page 2
Mirchawala’s Hub of Accountancy:
Question#10:
As part of the purchasing cycle, what is the correct order in which the following documents would
be processed?
A. Purchase order, purchase requisition, invoice, goods received note
B. Purchase requisition, purchase order, invoice, goods received note
C. Purchase order, purchase requisition, goods received note, invoice
D. Purchase requisition, purchase order, goods received note, invoice
Question#11:
Which department is responsible for preparing a goods received note?
A. Accounts
B. Purchasing
C. Quality control
D. Stores
Question#12:
The following statements are related to the use of different raw material pricing methods in a period
of consistently rising prices.
Is each of these statements true or false? True False
1. Production costs will be higher using LIFO rather than FIFO
2. Raw materials inventory values will be lower using LIFO rather than weighted average
Question#13:
The inventory record for Component C2 for a month shows:
Day Movement kg $ per kg
1 Balance 86 11.20
12 Receipt 200 11.90
14 Issue 174
18 Receipt 200 12.00
The periodic weighted average method is used to price the issue of materials. Each average price
is rounded to the nearest $0.01.
What is the cost of the issue in the month?
A. $2,070.60
B. $2,034.06
C. $2,056.68
D. $2,079.30
Question#14:
In an inventory control system, what is normally meant by free inventory?
A. Inventory which is available for new orders from customers
B. Inventory which is available for promotional offers
C. Inventory which is in transit from supplier to warehouse
D. Inventory which is in transit from warehouse to customer
Question#15:
In which department is a purchase order usually prepared?
A. Purchasing department of the buying organization
B. Goods received department of the buying organization
C. Dispatch department of the supplying organization
D. Inventory stores department of the buying organization
From the desk of Sir Ahmed Shafi: Page 3
Mirchawala’s Hub of Accountancy:
Question#16:
At the end of its financial year, a manufacturing company has the following materials held in
inventory: (1)100 toy cars which are complete but require packaging prior to being sold or dispatched
(2)One ton of plastic which will be molded into various products
Which of the following is the correct classification for the toy cars and the plastic?
A. Both the toy cars and the plastic are work in progress
B. Toy cars are finished goods and the plastic is work in progress
C. Toy cars are finished goods and the plastic is raw material
D. Toy cars are work in progress and the plastic is raw material
Question#17:
On 1 June there were 3,600 units of inventory component H valued at a price of $5 each. The
following receipts and issues were recorded during June:
5 June Receipts 5,000 units at $5.70 per unit
13 June Receipts 3,000 units at $6.10 per unit
25 June Issues 9,000 units
Using the first-in first-out (FIFO) method, what is the total value of the units issued on 25 June?
A. $48,940
B. $50,310
C. $51,800
D. $52,900
The following information relates to questions 18 and 19.
G Co makes the following purchases and sales.
1 January Purchases 4,000 units for $10,000
31 January Purchases 1,000 units for $2,000
15 February Sales 3,000 units for $13,000
28 February Purchases 1,500 units for $3,750
14 March Sales 500 units for $1,200
Question#18:
At 31 March which of the following closing inventory valuations using FIFO is correct?
A. $8,000
E. B. $7,500
F. C. $7,000
G. D. $6,500
Question#19:
At 31 March which of the following closing inventory valuations using LIFO is correct?
A. $6,500
B. $7,000
C. $7,500
D. $8,000
Question#20:
Which of the following is an example of internally generated document?
A. Invoice
B. Quotation
C. Goods receive note
D. Delivery note
From the desk of Sir Ahmed Shafi: Page 4
