26. Which of the following would normally be treated as an indirect cost? (1) Wages of a factory cleaner (2) Glue used in negligible quantities in assembling every unit (3) Packaging that forms part of the product sold

A) (1) only
B) (2) and (3) only
C) (1), (2) and (3)
D) (1) and (2) only

Correct: D difficult IAS 2.10

Factory cleaning is an indirect labour cost. Material used in negligible quantities is treated as an indirect material (overhead). Packaging that becomes part of the saleable product is a direct material.

27. Stock comprises 200 units at CU 4.00 and 300 units at CU 4.40. Job 405 is issued 350 units (FIFO). Later, 20 unused units are returned to stores at the issue price. What is the net direct material cost of the job?

A) CU 1,400
B) CU 1,372
C) CU 1,460
D) CU 1,540

Correct: B difficult IAS 2.25

The issue of 350 units costs 200 x 4.00 + 150 x 4.40 = CU 1,460. The 20 units returned came from the CU 4.40 layer, so the credit is 20 x 4.40 = CU 88. Net cost = 1,460 - 88 = CU 1,372. If you answered CU 1,460 you ignored the return. If you answered CU 1,540 you priced all 350 units at CU 4.40. If you answered CU 1,400 you priced all 350 units at CU 4.00.

28. A production worker is paid a premium for working a regular night shift. The shift is part of the normal production rota for all workers. How should the premium be treated?

A) As a direct labour cost of the job being worked at night
B) As a selling cost
C) As an administrative cost
D) As a production overhead shared over all production

Correct: D difficult IAS 2.10

Where the premium is paid for a regular shift system that is part of normal production, it is not caused by a particular job. It is treated as indirect labour (production overhead).

29. Opening inventory is 250 units at CU 6.00. On 4 March 400 units are bought at CU 6.30. On 9 March 300 units are issued. On 18 March 350 units are bought at CU 6.60. On 27 March 500 units are issued. Using the cumulative weighted average method, what is the total cost of the two issues?

A) CU 5,010
B) CU 5,052
C) CU 5,064
D) CU 5,130

Correct: B difficult IAS 2.25

9 March: 650 units cost CU 4,020, an average of CU 6.185, so the issue costs CU 1,855. Balance 350 units at CU 2,165. After the 18 March purchase: 700 units cost CU 4,475, an average of CU 6.393, so the 500 units cost CU 3,196. Total = CU 5,052. If you answered CU 5,010 you used FIFO. If you answered CU 5,130 you used LIFO. If you answered CU 5,064 you used a single periodic average of CU 6.33 on all 800 units issued.

30. Using the same transactions (250 units at CU 6.00; 400 bought at CU 6.30; 300 issued; 350 bought at CU 6.60; 500 issued), how does the closing inventory of 200 units compare under FIFO and LIFO?

A) FIFO CU 1,320 and LIFO CU 1,200, so FIFO is CU 120 higher
B) FIFO CU 1,200 and LIFO CU 1,320, so LIFO is CU 120 higher
C) Both are CU 1,260, because the units are identical
D) FIFO CU 1,320 and LIFO CU 1,260, so FIFO is CU 60 higher

Correct: A difficult IAS 2.25

FIFO leaves the latest purchase in stock: 200 x 6.60 = CU 1,320. LIFO leaves the oldest layer: 200 x 6.00 = CU 1,200. Prices are rising, so FIFO inventory is higher by CU 120. The methods give different values even though the units are identical.

31. SCENARIO: Rahim Chemicals has the following movements of one raw material in March: opening inventory 200 kg at CU 10; 5 March purchase 400 kg at CU 11; 8 March issue 350 kg; 12 March purchase 300 kg at CU 12.50; 20 March issue 300 kg. Closing inventory is 250 kg. QUESTION: Using FIFO, what is the cost of the 20 March issue?

A) CU 3,750
B) CU 3,650
C) CU 3,375
D) CU 3,500

Correct: C difficult IAS 2.25

Before the issue the stock is 250 kg at CU 11 and 300 kg at CU 12.50 (after the 8 March issue used 200 at 10 and 150 at 11). The issue takes 250 x 11 + 50 x 12.50 = CU 3,375. If you answered CU 3,750 you used LIFO (300 x 12.50). If you answered CU 3,650 you gave the cost of the first issue. If you answered CU 3,500 you used the cumulative weighted average (300 x 11.667).

32. SCENARIO: Rahim Chemicals has the following movements of one raw material in March: opening inventory 200 kg at CU 10; 5 March purchase 400 kg at CU 11; 8 March issue 350 kg; 12 March purchase 300 kg at CU 12.50; 20 March issue 300 kg. Closing inventory is 250 kg. QUESTION: Using LIFO (perpetual basis), what is the value of closing inventory?

A) CU 3,125
B) CU 2,917
C) CU 2,819
D) CU 2,550

Correct: D difficult Management accounting method (not permitted by IAS 2)

After the 8 March issue of 350 kg at CU 11 (latest purchase), 200 kg at CU 10 and 50 kg at CU 11 remain. The 20 March issue takes the 300 kg bought on 12 March, so closing inventory is 200 x 10 + 50 x 11 = CU 2,550. If you answered CU 3,125 you used FIFO. If you answered CU 2,917 you used cumulative weighted average. If you answered CU 2,819 you used periodic weighted average.

33. SCENARIO: Rahim Chemicals has the following movements of one raw material in March: opening inventory 200 kg at CU 10; 5 March purchase 400 kg at CU 11; 8 March issue 350 kg; 12 March purchase 300 kg at CU 12.50; 20 March issue 300 kg. Closing inventory is 250 kg. QUESTION: Using the cumulative (continuous) weighted average method, what is the value of closing inventory?

A) CU 2,819
B) CU 2,917
C) CU 3,125
D) CU 2,550

Correct: B difficult IAS 2.25

After 5 March: 600 kg at CU 10.667; after the 8 March issue 250 kg = CU 2,666.67. Adding 300 kg at CU 12.50 (CU 3,750) gives 550 kg for CU 6,416.67 = CU 11.667. After the 20 March issue, 250 kg x 11.667 = CU 2,917. If you answered CU 2,819 you used the periodic average (11.278). If you answered CU 3,125 you used FIFO. If you answered CU 2,550 you used LIFO.

34. SCENARIO: Rahim Chemicals has the following movements of one raw material in March: opening inventory 200 kg at CU 10; 5 March purchase 400 kg at CU 11; 8 March issue 350 kg; 12 March purchase 300 kg at CU 12.50; 20 March issue 300 kg. Closing inventory is 250 kg. QUESTION: Using the periodic weighted average method, what is the total cost of materials issued in March?

A) CU 7,025
B) CU 7,600
C) CU 7,331
D) CU 7,233

Correct: C difficult IAS 2.25

Average cost = total cost 10,150 / total units 900 = CU 11.278. Issues 650 kg x 11.278 = CU 7,331. If you answered CU 7,025 you used FIFO. If you answered CU 7,600 you used LIFO. If you answered CU 7,233 you used the cumulative weighted average (3,733 + 3,500).

35. SCENARIO: Rahim Chemicals has the following movements of one raw material in March: opening inventory 200 kg at CU 10; 5 March purchase 400 kg at CU 11; 8 March issue 350 kg; 12 March purchase 300 kg at CU 12.50; 20 March issue 300 kg. Closing inventory is 250 kg. QUESTION: Compared with LIFO (perpetual), by how much would FIFO change the reported profit for March?

A) CU 575 lower
B) CU 375 higher
C) No difference
D) CU 575 higher

Correct: D difficult IAS 2.25

FIFO cost of issues = 3,650 + 3,375 = CU 7,025. LIFO cost of issues = 3,850 + 3,750 = CU 7,600. With rising prices FIFO charges a lower cost of sales, so profit is CU 575 higher. If you answered 'lower' you reversed the direction. If you answered CU 375 you compared only the second issue under each method (3,750 - 3,375). If you answered 'no difference' you assumed total cost is the same across periods.

36. SCENARIO: Sultana works 48 hours in a week at a basic rate of CU 15 per hour. The first 40 hours are paid at basic rate and the remaining 8 at time and a half. 6 of her 48 hours were idle because of a machine breakdown. The other 42 hours were worked on Job J7. QUESTION: What is Sultana's gross pay for the week?

A) CU 720
B) CU 780
C) CU 840
D) CU 1,080

Correct: B difficult IAS 2.12

Gross pay = 40 x 15 + 8 x 22.50 = CU 780. If you answered CU 720 you paid all 48 hours at basic rate. If you answered CU 840 you paid the 8 overtime hours at double time. If you answered CU 1,080 you paid all 48 hours at time and a half.

37. SCENARIO: Sultana works 48 hours in a week at a basic rate of CU 15 per hour. The first 40 hours are paid at basic rate and the remaining 8 at time and a half. 6 of her 48 hours were idle because of a machine breakdown. The other 42 hours were worked on Job J7. QUESTION: What is the overtime premium?

A) CU 60
B) CU 180
C) CU 120
D) CU 240

Correct: A difficult IAS 2.12

Premium = 8 hours x CU 7.50 (the extra half) = CU 60. If you answered CU 180 you gave the total overtime pay. If you answered CU 120 you used the full basic rate (8 x 15). If you answered CU 240 you gave 8 hours at double time.

38. SCENARIO: Sultana works 48 hours in a week at a basic rate of CU 15 per hour. The first 40 hours are paid at basic rate and the remaining 8 at time and a half. 6 of her 48 hours were idle because of a machine breakdown. The other 42 hours were worked on Job J7. QUESTION: The overtime arose from general pressure of work. What direct labour cost is charged to Job J7?

A) CU 630
B) CU 780
C) CU 720
D) CU 690

Correct: A difficult IAS 2.12

When overtime arises from general pressure, the premium is an indirect cost shared across all jobs. Job J7 is charged 42 hours x CU 15 = CU 630. If you answered CU 780 you charged all pay to the job. If you answered CU 720 you included the idle hours. If you answered CU 690 you charged the premium to the job.

39. SCENARIO: Sultana works 48 hours in a week at a basic rate of CU 15 per hour. The first 40 hours are paid at basic rate and the remaining 8 at time and a half. 6 of her 48 hours were idle because of a machine breakdown. The other 42 hours were worked on Job J7. QUESTION: What is the cost of the idle time, treated as an overhead?

A) CU 135
B) CU 60
C) CU 120
D) CU 90

Correct: D difficult IAS 2.16(b)

Idle time = 6 hours x CU 15 = CU 90. The 6 idle hours fall within the first 40 hours, so they are at basic rate. If you answered CU 135 you used the overtime rate. If you answered CU 60 you gave the overtime premium. If you answered CU 120 you gave 8 hours at basic rate.

40. SCENARIO: Sultana works 48 hours in a week at a basic rate of CU 15 per hour. The first 40 hours are paid at basic rate and the remaining 8 at time and a half. 6 of her 48 hours were idle because of a machine breakdown. The other 42 hours were worked on Job J7. QUESTION: Suppose instead the overtime was worked at the customer's request to complete Job J7. What is the cost charged to Job J7?

A) CU 690
B) CU 630
C) CU 780
D) CU 750

Correct: A difficult IAS 2.12

When overtime is requested for a specific job, the premium is a direct cost of that job: 42 x 15 + 60 = CU 690. The idle time (CU 90) remains an overhead. If you answered CU 630 you treated the premium as an overhead. If you answered CU 780 you charged all pay including idle time. If you answered CU 750 you added the premium on 8 hours at basic rate (120).

41. SCENARIO: Nurul Ltd's materials account: opening inventory CU 50,000; purchases on credit CU 180,000; returns to suppliers CU 6,000; issues to production CU 150,000; issues to maintenance CU 8,000; returns from production to stores CU 4,000. A physical count at the year end values inventory at CU 66,000. QUESTION: What is the closing inventory per the records?

A) CU 66,000
B) CU 74,000
C) CU 62,000
D) CU 70,000

Correct: D difficult IAS 2.10

Opening 50,000 + purchases 180,000 - returns to suppliers 6,000 - issues to production 150,000 - maintenance 8,000 + returns from production 4,000 = CU 70,000. If you answered CU 66,000 you gave the physical count. If you answered CU 74,000 you added the maintenance issue instead of deducting it. If you answered CU 62,000 you also deducted the production returns.

42. SCENARIO: Nurul Ltd's materials account: opening inventory CU 50,000; purchases on credit CU 180,000; returns to suppliers CU 6,000; issues to production CU 150,000; issues to maintenance CU 8,000; returns from production to stores CU 4,000. A physical count at the year end values inventory at CU 66,000. QUESTION: What is the inventory loss that should be recognised?

A) CU 8,000
B) CU 70,000
C) CU 4,000
D) CU 66,000

Correct: C difficult IAS 2.16(a)

Book inventory 70,000 less physical count 66,000 = CU 4,000 loss, normally expensed in the period (or charged to overheads if normal). If you answered CU 8,000 you doubled it. If you answered CU 70,000 or CU 66,000 you gave an inventory balance instead of the loss.

43. SCENARIO: Nurul Ltd's materials account: opening inventory CU 50,000; purchases on credit CU 180,000; returns to suppliers CU 6,000; issues to production CU 150,000; issues to maintenance CU 8,000; returns from production to stores CU 4,000. A physical count at the year end values inventory at CU 66,000. QUESTION: Items costing CU 12,000 are expected to sell for CU 14,500, with CU 3,000 of costs to complete and sell. What write-down is needed under IAS 2?

A) CU 2,500
B) CU 500
C) CU 0
D) CU 3,000

Correct: B difficult IAS 2.9, 2.28

NRV = 14,500 - 3,000 = CU 11,500, below cost of CU 12,000. Inventory is written down by CU 500. If you answered CU 2,500 you compared cost with the selling price. If you answered CU 0 you ignored the costs to sell. If you answered CU 3,000 you gave the selling costs.

44. SCENARIO: Nurul Ltd's materials account: opening inventory CU 50,000; purchases on credit CU 180,000; returns to suppliers CU 6,000; issues to production CU 150,000; issues to maintenance CU 8,000; returns from production to stores CU 4,000. A physical count at the year end values inventory at CU 66,000. QUESTION: Which TWO of the following costs are excluded from the cost of inventory under IAS 2? (1) Abnormal amounts of wasted materials. (2) Storage costs after production that are not necessary for the production process. (3) Production overheads based on normal capacity.

A) (1) and (3)
B) (2) and (3)
C) (1) and (2)
D) (1) only

Correct: C difficult IAS 2.16

IAS 2.16 excludes abnormal waste, unnecessary storage costs, administrative overheads and selling costs. Production overheads based on normal capacity are included.

45. SCENARIO: Nurul Ltd's materials account: opening inventory CU 50,000; purchases on credit CU 180,000; returns to suppliers CU 6,000; issues to production CU 150,000; issues to maintenance CU 8,000; returns from production to stores CU 4,000. A physical count at the year end values inventory at CU 66,000. QUESTION: What is the net cost of materials charged to production for the year?

A) CU 146,000
B) CU 150,000
C) CU 154,000
D) CU 158,000

Correct: A difficult IAS 2.10

Issues to production 150,000 less returns from production 4,000 = CU 146,000. The CU 8,000 issued to maintenance is an overhead. If you answered CU 150,000 you ignored the returns. If you answered CU 154,000 you added the returns. If you answered CU 158,000 you also added the maintenance issue.

46. Purchases of a material in the period: 300 units at CU 8, 500 units at CU 9, 400 units at CU 10 (in that order, no opening inventory). 900 units were issued, leaving 300 in inventory. What is the cost of the issues using FIFO?

A) CU 8,175
B) CU 8,500
C) CU 9,000
D) CU 7,900

Correct: D difficult IAS 2.25

FIFO issues the earliest units first: 300 x 8 + 500 x 9 + 100 x 10 = CU 7,900. If you answered CU 8,175 you used the weighted average (900 x 9.083). If you answered CU 8,500 you used LIFO. If you answered CU 9,000 you priced all issues at the latest price.

47. Purchases of a material in the period: 300 units at CU 8, 500 units at CU 9, 400 units at CU 10 (in that order, no opening inventory). 900 units were issued, leaving 300 in inventory. What is the closing inventory using periodic LIFO?

A) CU 3,000
B) CU 2,725
C) CU 2,400
D) CU 2,700

Correct: C difficult Management accounting method (not permitted by IAS 2)

Under LIFO the issues take the latest purchases, so the 300 units left are the earliest: 300 x 8 = CU 2,400. If you answered CU 3,000 you used FIFO closing inventory. If you answered CU 2,725 you used the weighted average. If you answered CU 2,700 you used the middle price (300 x 9).

48. Purchases of a material in the period: 300 units at CU 8, 500 units at CU 9, 400 units at CU 10 (in that order, no opening inventory). 900 units were issued, leaving 300 in inventory. What is the closing inventory using the periodic weighted average?

A) CU 2,700
B) CU 2,725
C) CU 3,000
D) CU 2,400

Correct: B difficult IAS 2.25

Average cost = (2,400 + 4,500 + 4,000) / 1,200 = CU 9.083. Closing inventory = 300 x 9.083 = CU 2,725. If you answered CU 2,700 you used the middle price. If you answered CU 3,000 you used FIFO. If you answered CU 2,400 you used LIFO.

49. Piece rate is CU 0.80 per unit for the first 400 units in a week and CU 1.00 per unit above that. A worker makes 480 units. What is the week's pay?

A) CU 384
B) CU 480
C) CU 320
D) CU 400

Correct: D difficult IAS 2.12

400 x 0.80 + 80 x 1.00 = 320 + 80 = CU 400. If you answered CU 384 you applied CU 0.80 to all units. If you answered CU 480 you applied CU 1.00 to all units. If you answered CU 320 you paid only the first 400 units.

50. An employee works 45 hours. Basic rate is CU 12 per hour for 40 hours; overtime is paid at time and a half. What is gross pay?

A) CU 540
B) CU 570
C) CU 600
D) CU 810

Correct: B difficult IAS 2.12

40 x 12 + 5 x 18 = 480 + 90 = CU 570. If you answered CU 540 you paid all hours at basic rate. If you answered CU 600 you paid the overtime at double time. If you answered CU 810 you paid all hours at time and a half.