151. Purchases in the period were: 500 units at CU 14.00, 800 units at CU 14.80 and 700 units at CU 15.20. Issues were 1,300 units, leaving 700 units. There was no opening inventory. Using FIFO, what is the value of closing inventory?

A) CU 10,318
B) CU 10,360
C) CU 9,800
D) CU 10,640

Correct: D difficult Inventory valuation: FIFO

Under FIFO the 700 units left are from the latest purchase: 700 x 15.20 = CU 10,640. If you answered CU 10,318 you used the weighted average cost (CU 14.74). If you answered CU 10,360 you used the middle price. If you answered CU 9,800 you used the oldest price.

152. The standard output is 3 units an hour. A worker is paid for 38 hours and produces 152 units. What is the labour efficiency ratio?

A) 75.0%
B) 133.3%
C) 33.3%
D) 25.0%

Correct: B difficult Labour costing: efficiency ratio

Standard output = 38 x 3 = 114 units. Efficiency = 152 / 114 = 133.3%. If you answered 75.0% you inverted the ratio. If you answered 33.3% you gave the excess over standard. If you answered 25.0% you divided the hours by the units.

153. A business has 12 leavers in a year. Each leaver costs CU 4,200 to replace, CU 2,800 to train and CU 1,500 in lost output. What is the annual cost of labour turnover?

A) CU 102,000
B) CU 50,400
C) CU 84,000
D) CU 8,500

Correct: A difficult Labour costing: cost of labour turnover

Cost per leaver = 4,200 + 2,800 + 1,500 = 8,500. For 12 leavers the cost is CU 102,000. If you answered CU 50,400 you included recruitment only. If you answered CU 84,000 you left out lost output. If you answered CU 8,500 you gave the cost for one leaver.

154. A store holds 400 units at CU 5.00. It receives 600 units at CU 5.50, issues 700 units, receives 500 units at CU 6.00 and issues 500 units. Using perpetual FIFO, what is the cost of the second issue?

A) CU 3,000
B) CU 2,750
C) CU 2,850
D) CU 2,767

Correct: C difficult Inventory valuation: perpetual FIFO

The first issue takes all 400 at CU 5.00 and 300 at CU 5.50, leaving 300 at CU 5.50. The second issue is 300 x 5.50 + 200 x 6.00 = 1,650 + 1,200 = CU 2,850. If you answered CU 3,000 you used the latest price. If you answered CU 2,750 you used CU 5.50 for all 500 units. If you answered CU 2,767 you used the periodic weighted average.

155. Which TWO statements about idle time are correct? (1) Normal idle time is built into labour rates or overheads. (2) Abnormal idle time is charged to profit or loss. (3) All idle time is a direct cost of the jobs worked. (4) Overtime premiums are always a direct cost of a job.

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

Correct: C difficult Labour costing: idle time

Expected idle time is part of the normal cost of labour, while abnormal idle time (a breakdown, say) is a period cost. Idle time is not charged directly to jobs, and a general overtime premium is overhead. If you chose (3) you charged idle time to jobs. If you chose (4) you charged all premiums to jobs.

156. An entity buys materials for CU 62,000 (invoice). Non-recoverable import duty is CU 4,650, recoverable sales tax CU 9,300 and carriage inwards CU 1,900. A trade rebate of CU 2,000 was later received. What is the cost of the inventory under IAS 2?

A) CU 75,850
B) CU 68,550
C) CU 66,550
D) CU 64,650

Correct: C difficult IAS 2: purchase cost

Cost = 62,000 + 4,650 + 1,900 - 2,000 = CU 66,550. Recoverable sales tax is not a cost. If you answered CU 75,850 you included the recoverable tax. If you answered CU 68,550 you ignored the rebate. If you answered CU 64,650 you left out carriage inwards.

157. Maximum usage is 155 units a day, average usage 130 and the lead time ranges up to 12 days, averaging 9 days. What is the minimum inventory level?

A) 1,860 units
B) 1,170 units
C) 690 units
D) 3,030 units

Correct: C difficult Inventory control: minimum level

Reorder level = 155 x 12 = 1,860. Minimum level = reorder level - average usage x average lead time = 1,860 - 1,170 = 690. If you answered 1,860 you gave the reorder level. If you answered 1,170 you gave average usage in the average lead time. If you answered 3,030 you added the two.

158. Gross wages are CU 84,000. Employee income tax is CU 12,600, employee social security CU 6,720 and employer social security CU 8,400. What is the net pay to employees?

A) CU 71,400
B) CU 56,280
C) CU 92,400
D) CU 64,680

Correct: D difficult Labour costing: payroll

Net pay = 84,000 - 12,600 - 6,720 = CU 64,680. The employer's contribution is an extra cost to the business and does not reduce employees' pay. If you answered CU 71,400 you left out the employee social security. If you answered CU 56,280 you also deducted the employer's contribution. If you answered CU 92,400 you added the employer's contribution.

159. A product has a standard time of 6 minutes. An operator, paid CU 18 an hour, makes 520 units in 38 hours. Under a standard hour system, pay is based on standard hours produced. What is the pay?

A) CU 684
B) CU 936
C) CU 252
D) CU 3,120

Correct: B difficult Labour costing: standard hour scheme

Standard hours produced = 520 x 6 / 60 = 52. Pay = 52 x 18 = CU 936. If you answered CU 684 you paid for hours worked. If you answered CU 252 you gave the bonus only. If you answered CU 3,120 you gave the standard minutes produced as a currency amount.

160. 5,200 kg of material are bought at CU 3.50 a kg. Normal wastage of 4% of the quantity bought occurs in storage. What is the cost per usable kg?

A) CU 3.50
B) CU 3.64
C) CU 3.80
D) CU 3.65

Correct: D difficult Material costing: normal storage loss

Usable quantity = 5,200 x 96% = 4,992 kg. Cost per kg = 18,200 / 4,992 = CU 3.65. If you answered CU 3.50 you ignored the loss. If you answered CU 3.64 you added 4% to the price. If you answered CU 3.80 you divided the price by 92%, doubling the loss rate.

161. Average inventory is CU 60,000. Holding costs are: finance 9%, insurance 1.5%, obsolescence 3%, and fixed storage rent of CU 6,000 that does not change with inventory. What is the relevant annual holding cost?

A) CU 14,100
B) CU 8,100
C) CU 5,400
D) CU 2,100

Correct: B difficult Inventory management: holding costs

Variable holding cost = 13.5% x 60,000 = CU 8,100. Fixed rent is not relevant to inventory decisions. If you answered CU 14,100 you included the rent. If you answered CU 5,400 you counted finance only. If you answered CU 2,100 you took the difference between 8,100 and 6,000.

162. A worker is paid for 2,080 hours at CU 18. Holiday (200 hours) and sickness (64 hours) are paid but unproductive. Employer pension costs add 6%. What is the cost per productive hour?

A) CU 21.85
B) CU 19.08
C) CU 18.00
D) CU 20.62

Correct: A difficult Labour costing: cost per productive hour

Total cost = 2,080 x 18 x 1.06 = 39,686. Productive hours = 2,080 - 264 = 1,816. Cost per hour = CU 21.85. If you answered CU 19.08 you divided by all paid hours. If you answered CU 18.00 you used the basic rate. If you answered CU 20.62 you left out the pension cost.

163. Which TWO statements are correct? (1) A perpetual inventory system updates inventory records after each receipt and issue. (2) Physical counts are used to verify inventory records. (3) A periodic system records every issue as it happens. (4) FIFO values closing inventory at the oldest purchase prices.

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

Correct: A difficult Inventory control: recording systems

Perpetual systems keep running balances, and counts check them. A periodic system calculates usage from counts, and FIFO values closing inventory at the most recent prices. If you chose (3) you described the perpetual system. If you chose (4) you reversed FIFO.

164. Opening inventory is 200 units at CU 10. Purchases are 300 units at CU 11 and then 300 units at CU 12. Sales are 600 units. How does profit under FIFO compare with profit under weighted average cost?

A) FIFO lower by CU 175
B) FIFO higher by CU 350
C) No difference
D) FIFO higher by CU 175

Correct: D difficult Inventory valuation: FIFO v weighted average

FIFO cost of sales = 2,000 + 3,300 + 1,200 = 6,500. Weighted average = 8,900 / 800 = 11.125 x 600 = 6,675. With rising prices FIFO gives the lower cost and CU 175 higher profit. If you answered lower you reversed the effect. If you answered CU 350 you doubled the difference. If you answered no difference you ignored the price rise.

165. Employees work 560 overtime hours at time-and-a-quarter on a basic rate of CU 16. The overtime is a result of general pressure of work. How much is charged to overhead?

A) CU 2,240
B) CU 11,200
C) CU 8,960
D) CU 0

Correct: A difficult Labour costing: overtime premium

Overtime cost = 560 x 20 = 11,200. The basic element of 8,960 is charged to jobs and the premium of 560 x 4 = CU 2,240 to overhead. If you answered CU 11,200 you charged all the overtime to overhead. If you answered CU 8,960 you gave the basic element. If you answered CU 0 you charged everything to jobs.

166. Opening inventory was 500 units at CU 12. Purchases were 500 units at CU 13 and then 500 units at CU 14. Issues in the period were 1,100 units. Using FIFO and periodic valuation, what is the closing inventory?

A) CU 5,200
B) CU 13,900
C) CU 5,600
D) CU 4,800

Correct: C difficult Inventory valuation: FIFO

Closing inventory is 400 units, all from the latest purchase: 400 x 14 = CU 5,600. If you answered CU 5,200 you used the weighted average cost of CU 13. If you answered CU 13,900 you gave the cost of issues. If you answered CU 4,800 you valued the units at the opening price of CU 12.

167. Opening inventory was 200 units at CU 10. A receipt of 300 units at CU 12 was followed by an issue of 350 units. Using perpetual weighted average cost, what is the cost of the issue?

A) CU 3,920
B) CU 3,800
C) CU 3,850
D) CU 4,200

Correct: A difficult Inventory valuation: weighted average

After the receipt: 500 units costing 5,600, an average of CU 11.20. Issue = 350 x 11.20 = CU 3,920. If you answered CU 3,800 you used FIFO. If you answered CU 3,850 you averaged the two prices (10 and 12) without weighting. If you answered CU 4,200 you used the latest price.

168. Usage is between 50 and 90 units a day (average 70). The lead time is between 8 and 12 days (average 10). The reorder quantity is 1,400 units. What is the maximum inventory level?

A) 2,480 units
B) 1,780 units
C) 2,080 units
D) 1,080 units

Correct: C difficult Inventory control: maximum level

Reorder level = 90 x 12 = 1,080. Maximum level = 1,080 + 1,400 - (50 x 8) = 2,080. If you answered 2,480 you did not deduct the minimum usage in the minimum lead time. If you answered 1,780 you deducted average usage in the average lead time. If you answered 1,080 you gave the reorder level.

169. An employee is paid CU 14 an hour for a 40-hour week and a 50% overtime premium. The employee works 48 hours because of general pressure of work. What is charged to overhead as the overtime premium?

A) CU 56
B) CU 168
C) CU 112
D) CU 728

Correct: A difficult Labour costing: overtime

The 8 overtime hours attract a premium of 14 x 50% = CU 7 each, so CU 56. The basic rate is charged to the product. If you answered CU 168 you charged the full overtime pay. If you answered CU 112 you charged the basic rate of overtime hours. If you answered CU 728 you gave the gross wages.

170. Workers are paid for 800 hours at CU 18 an hour. Of these, 80 hours were idle. What is the labour cost per productive hour?

A) CU 18
B) CU 20
C) CU 1,440
D) CU 16.20

Correct: B difficult Labour costing: idle time

Total pay = 800 x 18 = 14,400. Productive hours = 720. Cost per productive hour = 14,400 / 720 = CU 20. If you answered CU 18 you gave the hourly rate. If you answered CU 1,440 you gave the idle time cost. If you answered CU 16.20 you applied 90% to the rate instead of dividing.

171. A worker is paid CU 0.80 per unit with a guaranteed weekly wage of CU 408. The worker makes 480 units in the week. What is the gross pay?

A) CU 384
B) CU 792
C) CU 408
D) CU 24

Correct: C difficult Labour costing: piecework

Piece earnings = 480 x 0.80 = 384, which is below the guarantee, so pay is CU 408. If you answered CU 384 you ignored the guarantee. If you answered CU 792 you added the piece earnings to the guarantee. If you answered CU 24 you gave the top-up only.

172. Eight employees left in the year. Each leaver caused recruitment costs of CU 2,100, training costs of CU 1,500 and lost output of CU 900. What is the total cost of labour turnover?

A) CU 36,000
B) CU 4,500
C) CU 28,800
D) CU 3,600

Correct: A difficult Labour costing: turnover

Cost per leaver = 4,500. Total = 8 x 4,500 = CU 36,000. If you answered CU 4,500 you gave the cost of one leaver. If you answered CU 28,800 you left out lost output. If you answered CU 3,600 you gave the recruitment and training cost for one leaver.

173. A material costs CU 5.20 a kg. A purchase of 4,000 kg has a normal loss of 20% of input. What is the cost per usable kg?

A) CU 5.20
B) CU 6.50
C) CU 6.24
D) CU 4.16

Correct: B difficult Material costing: normal loss

Total cost = 20,800. Usable = 3,200 kg. Cost = CU 6.50. If you answered CU 5.20 you ignored the loss. If you answered CU 6.24 you added 20% to the price instead of dividing by 80%. If you answered CU 4.16 you deducted 20% from the price.

174. The standard time is 0.5 hours a unit. A team makes 1,260 units in 560 hours. The rate is CU 12 an hour and the team receives 50% of time saved as a bonus. What is the bonus?

A) CU 420
B) CU 840
C) CU 35
D) CU 7,560

Correct: A difficult Labour costing: incentive schemes

Standard hours = 630, hours saved = 70. Bonus = 70 x 12 x 50% = CU 420. If you answered CU 840 you paid the full time saved. If you answered CU 35 you gave the hours bonus, not CU. If you answered CU 7,560 you valued all standard hours.

175. A worker's gross salary is CU 3,200 a month. The employer also pays 8% pension and 5% social security contributions. What is the cost to the employer?

A) CU 3,200
B) CU 3,456
C) CU 3,360
D) CU 3,616

Correct: D difficult Labour costing: employment costs

Employer cost = 3,200 x 1.13 = CU 3,616. If you answered CU 3,200 you ignored employer contributions. If you answered CU 3,456 you added only the pension. If you answered CU 3,360 you added only social security.