76. Opening inventory is 250 units at CU 3.20. Purchases are 400 units at CU 3.50 then 350 units at CU 3.80. A total of 700 units are sold for CU 6.00 each. Using periodic FIFO, what is the closing inventory?

A) CU 975
B) CU 1,059
C) CU 1,050
D) CU 1,140

Correct: D difficult IAS 2: cost formulas

FIFO leaves the latest purchases: 300 units at CU 3.80 = CU 1,140. If you answered CU 975 you used LIFO (250 x 3.20 + 50 x 3.50). If you answered CU 1,059 you used the weighted average of CU 3.53. If you answered CU 1,050 you priced all 300 units at the middle price of CU 3.50.

77. Opening inventory is 250 units at CU 3.20. Purchases are 400 units at CU 3.50 then 350 units at CU 3.80. A total of 700 units are sold for CU 6.00 each. Using periodic LIFO (a management accounting method), what is the gross profit?

A) CU 1,810
B) CU 1,645
C) CU 1,729
D) CU 2,555

Correct: B difficult IAS 2: cost formulas

LIFO cost of sales = 350 x 3.80 + 350 x 3.50 = 2,555. Gross profit = 4,200 - 2,555 = CU 1,645. If you answered CU 1,810 you used FIFO. If you answered CU 1,729 you used the weighted average. If you answered CU 2,555 you gave the cost of sales.

78. Opening inventory is 250 units at CU 3.20. Purchases are 400 units at CU 3.50 then 350 units at CU 3.80. A total of 700 units are sold for CU 6.00 each. Which TWO of the following are correct? (1) FIFO gives the highest gross profit. (2) LIFO gives the lowest closing inventory value. (3) Weighted average gives the highest gross profit. (4) LIFO gives the highest closing inventory value.

A) (1) and (2) only
B) (1) and (3) only
C) (2) and (4) only
D) (3) and (4) only

Correct: A difficult IAS 2: cost formulas

With rising prices FIFO gives gross profit of 1,810, weighted average 1,729 and LIFO 1,645, and closing inventory of 1,140, 1,059 and 975 respectively. If you chose (3) or (4) you reversed the effect of rising prices.

79. Opening inventory is 100 units at CU 20. Receive 200 units at CU 23. Issue 150 units. Receive 100 units at CU 25. Issue 120 units. Using perpetual (cumulative) weighted average, what is the cost of the second issue?

A) CU 3,000
B) CU 2,784
C) CU 2,730
D) CU 2,760

Correct: B difficult IAS 2: cost formulas

After the first receipt: 300 units, 6,600, average CU 22. After the first issue: 150 units, 3,300. After the second receipt: 250 units, 5,800, average CU 23.20. Second issue = 120 x 23.20 = CU 2,784. If you answered CU 3,000 you used the latest price. If you answered CU 2,730 you used a periodic average (22.75). If you answered CU 2,760 you used FIFO prices.

80. Book inventory is 4,200 units at CU 5.00 each. A count finds 4,050 units, of which 100 are damaged and can be sold for only CU 2 each with no further cost. What is the total charge to profit?

A) CU 750
B) CU 300
C) CU 1,050
D) CU 1,350

Correct: C difficult IAS 2 Inventories

The shortage of 150 units costs 150 x 5 = 750. The 100 damaged units are written down by 100 x (5 - 2) = 300. Total charge = CU 1,050. If you answered CU 750 you ignored the damaged units. If you answered CU 300 you ignored the shortage. If you answered CU 1,350 you counted the write-down of the damaged units twice.

81. 1,500 units of inventory cost CU 18 each. They can be sold for CU 26 each, but CU 4 a unit is needed to complete them and CU 6 a unit is selling cost. What is the write-down to NRV?

A) CU 3,000
B) CU 0
C) CU 9,000
D) CU 6,000

Correct: A difficult IAS 2 Inventories

NRV = 26 - 4 - 6 = CU 16 a unit, below the cost of CU 18. Write-down = 2 x 1,500 = CU 3,000. If you answered CU 0 you compared the cost with the selling price less selling costs only (CU 20) and so missed the completion cost. If you answered CU 9,000 you deducted the selling cost per unit as the write-down. If you answered CU 6,000 you used the completion cost per unit.

82. An employee is paid CU 16 an hour basic and time and a half for overtime. Eight overtime hours were worked solely to complete an urgent job requested by a customer. What is charged directly to that job for the overtime?

A) CU 128
B) CU 64
C) CU 192
D) CU 24

Correct: C difficult Labour costs

Overtime caused by a specific job is a direct cost of that job, including the premium: 8 x 16 x 1.5 = CU 192. If you answered CU 128 you charged only the basic rate. If you answered CU 64 you charged only the premium. If you answered CU 24 you gave the overtime rate per hour.

83. A worker is paid CU 14 an hour for a 40-hour week or, alternatively, CU 0.70 per unit produced. At what weekly output do the two methods cost the same?

A) 560 units
B) 800 units
C) 392 units
D) 1,143 units

Correct: B difficult Labour remuneration

Time-rate pay = 14 x 40 = CU 560. Equivalent output = 560 / 0.70 = 800 units. If you answered 560 you used the pay as the number of units. If you answered 392 you multiplied by the piece rate. If you answered 1,143 you divided 800 by the piece rate again.

84. Closing inventory at the end of Year 1 is understated by CU 4,000. The closing inventory at the end of Year 2 is correct. What is the effect on reported profit?

A) Year 1 profit overstated by CU 4,000 and Year 2 profit understated by CU 4,000
B) Year 1 profit understated by CU 4,000 and Year 2 profit overstated by CU 4,000
C) Year 1 profit understated by CU 4,000 and Year 2 profit unaffected
D) Both years' profits understated by CU 4,000

Correct: B difficult IAS 2 Inventories

Understated closing inventory raises cost of sales in Year 1, so profit is understated. The same figure is the opening inventory for Year 2, so Year 2 cost of sales is understated and profit overstated. The effect reverses. If you chose the first alternative you reversed the signs. If you chose unaffected you ignored the opening inventory. If you chose both understated you ignored the reversal.

85. A piece rate pays CU 0.50 a unit for the first 400 units, CU 0.60 for the next 300 units and CU 0.75 for each unit above 700. What is the pay for 850 units?

A) CU 637.50
B) CU 510.00
C) CU 425.00
D) CU 492.50

Correct: D difficult Labour remuneration

Pay = 400 x 0.50 + 300 x 0.60 + 150 x 0.75 = 200 + 180 + 112.50 = CU 492.50. If you answered CU 637.50 you paid all units at the top rate. If you answered CU 510 you paid all units at the middle rate. If you answered CU 425 you paid all units at the bottom rate.

86. Which TWO of the following are correct? (1) Normal idle time is included in production overhead. (2) Abnormal idle time is charged to profit or loss. (3) Idle time is always a direct labour cost. (4) Idle time cost is part of prime cost.

A) (1) and (3) only
B) (2) and (4) only
C) (3) and (4) only
D) (1) and (2) only

Correct: D difficult Labour costs

Normal idle time is an expected cost of production and abnormal idle time is a loss that is not included in inventory. If you chose (3) or (4) you treated idle time as a direct cost, whereas it is not traceable to products.

87. An employee's annual salary is CU 31,200 and employer on-costs are 15% of salary. The employee works 30 productive hours a week for 52 weeks. What is the cost per productive hour?

A) CU 20.00
B) CU 26.45
C) CU 23.00
D) CU 17.39

Correct: C difficult Labour costs

Total cost = 31,200 x 1.15 = 35,880. Productive hours = 30 x 52 = 1,560. Cost per hour = CU 23. If you answered CU 20 you ignored the on-costs. If you answered CU 26.45 you added 15% twice. If you answered CU 17.39 you deducted the on-costs (31,200 / 1.15 / 1,560).

88. Which TWO of the following are correct? (1) FIFO matches the physical flow of perishable goods. (2) Weighted average smooths the effect of price changes. (3) IAS 2 permits LIFO. (4) Under FIFO closing inventory is valued at the oldest prices.

A) (1) and (3) only
B) (2) and (4) only
C) (3) and (4) only
D) (1) and (2) only

Correct: D difficult IAS 2: cost formulas

FIFO is consistent with selling the oldest goods first, and averaging reduces the effect of price changes. IAS 2 does not permit LIFO, and FIFO leaves the most recent prices in closing inventory. If you chose (3) you assumed LIFO is allowed. If you chose (4) you described LIFO.

89. A materials control account has an opening balance of CU 6,000. Purchases are 1,000 units at CU 12. 150 units are returned to the supplier. Issues to production are CU 9,000. What is the closing balance?

A) CU 9,000
B) CU 10,800
C) CU 7,200
D) CU 5,400

Correct: C difficult Materials accounting

Closing balance = 6,000 + 12,000 - 1,800 - 9,000 = CU 7,200. If you answered CU 9,000 you ignored the return. If you answered CU 10,800 you added the return. If you answered CU 5,400 you deducted the return twice.

90. 1,600 hours were paid at CU 14 an hour and 1,360 were productive. What is the cost of the idle time?

A) CU 3,360
B) CU 19,040
C) CU 22,400
D) CU 240

Correct: A difficult Labour costs

Idle hours = 1,600 - 1,360 = 240. Cost = 240 x 14 = CU 3,360. If you answered CU 19,040 you gave the cost of productive time. If you answered CU 22,400 you gave the total wage cost. If you answered CU 240 you gave the hours.

91. Opening inventory was 400 units at CU 12. Purchases were 600 units at CU 13 and then 500 units at CU 14. Issues in the period totalled 1,100 units. Using periodic FIFO, what is the value of closing inventory?

A) CU 4,800
B) CU 5,600
C) CU 5,227
D) CU 5,200

Correct: B difficult IAS 2: cost formulas

Closing inventory is 1,500 - 1,100 = 400 units, taken from the latest purchase: 400 x 14 = CU 5,600. If you answered CU 4,800 you valued closing stock at the opening price (400 x 12), as if the newest stock had been issued first. If you answered CU 5,227 you used the weighted average cost (19,600 / 1,500 x 400). If you answered CU 5,200 you used the simple average of the three prices (CU 13).

92. Inventory records: 200 units at CU 5.00 on hand. Purchases: 300 units at CU 6.00 (5 Jan) and 250 units at CU 6.40 (12 Jan). Issues: 350 units (8 Jan) and 300 units (15 Jan). Using perpetual weighted average cost, what is the value of closing inventory?

A) CU 587
B) CU 640
C) CU 560
D) CU 610

Correct: D difficult IAS 2: cost formulas

After the 5 Jan receipt: 500 units at CU 5.60. The 8 Jan issue leaves 150 units at 5.60 = 840. After the 12 Jan receipt: 400 units, 2,440, average CU 6.10. After the 15 Jan issue 100 units remain at CU 6.10 = CU 610. If you answered CU 587 you used a single periodic average (4,400 / 750). If you answered CU 640 you used FIFO. If you answered CU 560 you kept the average from 5 Jan and did not recalculate it after the 12 Jan purchase.

93. Which TWO statements about IAS 2 Inventories are correct? (1) Inventory is measured at the lower of cost and net realisable value. (2) Net realisable value is the estimated selling price less estimated costs of completion and costs necessary to make the sale. (3) Abnormal waste is included in the cost of inventory. (4) Storage costs incurred after production are always included in the cost of inventory.

A) (1) and (3) only
B) (2) and (4) only
C) (3) and (4) only
D) (1) and (2) only

Correct: D difficult IAS 2: measurement

IAS 2 requires the lower of cost and NRV, and defines NRV net of completion and selling costs. Abnormal waste is expensed and storage costs after production are excluded unless needed before a further production stage. If you chose (3) you capitalised abnormal waste. If you chose (4) you included post-production storage.

94. Item A: cost 18,500, selling price 21,000, costs to complete 1,800, selling costs 900. Item B: cost 12,400, selling price 13,500, selling costs 1,600. Item C: cost 9,000, selling price 8,200, selling costs 450. All figures in CU. At what total value should the three items be stated, item by item?

A) CU 39,900
B) CU 39,100
C) CU 37,950
D) CU 38,150

Correct: C difficult IAS 2: net realisable value

NRV: A = 21,000 - 1,800 - 900 = 18,300; B = 13,500 - 1,600 = 11,900; C = 8,200 - 450 = 7,750. Each is lower than cost, so the total is CU 37,950. If you answered CU 39,900 you used cost for all items. If you answered CU 39,100 you valued A and B at cost and ignored the selling costs of C (8,200). If you answered CU 38,150 you ignored the completion costs of A.

95. A direct worker is paid CU 15 an hour for a 40-hour week and time and a half for overtime. Last week she worked 48 hours because of general pressure of work, not for any particular job. What overtime premium is treated as production overhead?

A) CU 60
B) CU 180
C) CU 120
D) CU 780

Correct: A difficult Labour: overtime

The premium is the extra half-rate on the overtime hours: 8 x 15 x 0.5 = CU 60. The basic rate is direct labour as the hours are worked on production. If you answered CU 180 you included the basic pay for the overtime hours. If you answered CU 120 you took the overtime hours at basic rate only. If you answered CU 780 you gave the total pay for the week.

96. Piece rate is CU 0.85 a unit with a guaranteed weekly minimum of CU 361. Four workers made 410, 450, 420 and 480 units. What is the total wages cost?

A) CU 1,496.00
B) CU 1,444.00
C) CU 1,512.50
D) CU 1,508.50

Correct: C difficult Labour: piecework

Piece pay: 348.50, 382.50, 357.00 and 408.00. Workers 1 and 3 fall below the guarantee and receive CU 361 each. Total = 361 + 382.50 + 361 + 408 = CU 1,512.50. If you answered CU 1,496 you paid piece rate with no guarantee. If you answered CU 1,444 you paid the minimum to everyone. If you answered CU 1,508.50 you topped up only the lowest-paid worker.

97. Direct workers were paid for 1,600 hours at CU 14 an hour. Idle time was 8% of paid hours, of which 5% is normal and the remainder was caused by a machine breakdown. What labour cost is included in the cost of production?

A) CU 22,400
B) CU 20,608
C) CU 21,728
D) CU 21,280

Correct: C difficult Labour: idle time

Normal idle time is part of production cost. Abnormal idle time (3% x 1,600 = 48 hours x 14 = CU 672) is charged to profit or loss. Production cost = 22,400 - 672 = CU 21,728. If you answered CU 22,400 you included all idle time. If you answered CU 20,608 you excluded all 8%. If you answered CU 21,280 you excluded the normal 5% instead of the abnormal 3%.

98. A team makes 130 units in 480 hours. The allowed time is 4 hours a unit, the hourly rate is CU 11 and a bonus equal to 50% of the time saved, at the hourly rate, is paid. What is the total labour cost?

A) CU 5,500
B) CU 5,280
C) CU 5,720
D) CU 5,940

Correct: A difficult Labour: bonus

Time allowed = 520 hours, so 40 hours are saved. Pay = 480 x 11 = 5,280, plus bonus 40 x 50% x 11 = 220. Total = CU 5,500. If you answered CU 5,280 you omitted the bonus. If you answered CU 5,720 you paid the full value of the time saved. If you answered CU 5,940 you paid for the allowed hours and added the bonus on top.

99. Gross wages were CU 85,000, employees' deductions CU 18,700 and the employer's social security cost CU 9,350. Direct labour charged to work in progress was CU 62,000. What is posted to production overhead control from wages control?

A) CU 32,350
B) CU 23,000
C) CU 13,650
D) CU 9,350

Correct: A difficult Labour: wages control

Wages control is debited with gross wages plus the employer's cost: 94,350. After charging 62,000 to work in progress, CU 32,350 is indirect labour cost. Employee deductions are part of gross pay and do not reduce the cost to the employer. If you answered CU 23,000 you omitted the employer's cost. If you answered CU 13,650 you deducted the employees' deductions. If you answered CU 9,350 you gave the employer's cost alone.

100. A buyer purchased 1,200 units at list price CU 8, less a 10% trade discount. Import duty is 5% of the discounted price and carriage inwards is CU 360. What is the cost per unit for inventory valuation?

A) CU 7.90
B) CU 7.56
C) CU 7.20
D) CU 7.86

Correct: D difficult IAS 2: cost of purchase

Cost = 8,640 + duty 432 + carriage 360 = 9,432, so CU 7.86 a unit. If you answered CU 7.90 you charged duty on the list price (480). If you answered CU 7.56 you omitted the carriage inwards. If you answered CU 7.20 you included only the discounted purchase price.