176. Which TWO statements are correct? (1) In a period of rising prices, FIFO values closing inventory closer to current prices. (2) Weighted average cost smooths the effect of price changes. (3) FIFO reports lower profit than weighted average when prices rise. (4) IAS 2 permits the use of LIFO.

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

Correct: D difficult Inventory valuation: IAS 2

FIFO leaves the latest, higher prices in inventory and charges older, lower prices to cost of sales, so profit is higher, not lower. IAS 2 prohibits LIFO. If you chose (3) you reversed the profit effect. If you chose (4) you assumed LIFO is allowed.

177. Inventory of 600 units cost CU 48 each. The expected selling price is CU 52 and selling costs are CU 6 a unit. At what amount should inventory be carried?

A) CU 28,800
B) CU 31,200
C) CU 1,200
D) CU 27,600

Correct: D difficult Inventory valuation: NRV

IAS 2 requires the lower of cost (48) and net realisable value (52 - 6 = 46). 600 x 46 = CU 27,600. If you answered CU 28,800 you used cost. If you answered CU 31,200 you used the selling price. If you answered CU 1,200 you gave the write-down.

178. Annual costs of holding inventory: rent of the store CU 4,000 (unavoidable), insurance on inventory value CU 3,000, interest on average inventory CU 4,800, obsolescence CU 1,200. What holding cost is relevant to an inventory decision?

A) CU 13,000
B) CU 9,000
C) CU 7,800
D) CU 4,800

Correct: B difficult Inventory management: holding costs

Only costs that vary with inventory level are relevant: 3,000 + 4,800 + 1,200 = CU 9,000. If you answered CU 13,000 you included the unavoidable rent. If you answered CU 7,800 you left out obsolescence. If you answered CU 4,800 you included interest only.

179. Opening inventory was 300 units at CU 8. A receipt of 400 units at CU 9 followed. Using FIFO, what is the cost of an issue of 450 units?

A) CU 4,050
B) CU 3,600
C) CU 3,825
D) CU 3,750

Correct: D difficult Inventory valuation: perpetual FIFO

FIFO: 300 x 8 + 150 x 9 = 2,400 + 1,350 = CU 3,750. If you answered CU 4,050 you used the latest price for all units. If you answered CU 3,600 you used the oldest price for all units. If you answered CU 3,825 you used the simple average of the two prices.

180. Gross wages were CU 64,000. This includes idle time CU 4,800, indirect labour CU 9,200 and overtime premium CU 3,000. How much is debited to production overhead?

A) CU 47,000
B) CU 17,000
C) CU 12,200
D) CU 14,000

Correct: B difficult Labour costing: wages analysis

Overhead = 4,800 + 9,200 + 3,000 = CU 17,000. The remaining CU 47,000 is direct labour. If you answered CU 47,000 you gave the direct labour. If you answered CU 12,200 you left out idle time. If you answered CU 14,000 you left out the overtime premium.

181. Opening inventory was 400 units at CU 20. Purchases were 400 units at CU 22 and then 400 units at CU 24. Issues in the period were 800 units. Using FIFO and periodic valuation, what is the closing inventory?

A) CU 8,800
B) CU 16,800
C) CU 8,000
D) CU 9,600

Correct: D difficult Inventory valuation: FIFO

Closing inventory is 400 units, all from the latest purchase: 400 x 24 = CU 9,600. If you answered CU 8,800 you used the weighted average cost of CU 22. If you answered CU 16,800 you gave the cost of issues. If you answered CU 8,000 you valued the units at the opening price of CU 20.

182. Opening inventory was 300 units at CU 8. A receipt of 200 units at CU 13 was followed by an issue of 260 units. Using perpetual weighted average cost, what is the cost of the issue?

A) CU 2,080
B) CU 2,730
C) CU 2,600
D) CU 3,380

Correct: C difficult Inventory valuation: weighted average

After the receipt: 500 units costing 5,000, an average of CU 10. Issue = 260 x 10 = CU 2,600. If you answered CU 2,080 you used FIFO. If you answered CU 2,730 you averaged the two prices (8 and 13) without weighting. If you answered CU 3,380 you used the latest price.

183. Usage is between 40 and 80 units a day (average 60). The lead time is between 5 and 9 days (average 7). The reorder quantity is 900 units. What is the minimum inventory level?

A) 300 units
B) 720 units
C) 1,420 units
D) 520 units

Correct: A difficult Inventory control: minimum level

Reorder level = 80 x 9 = 720. Minimum level = 720 - (60 x 7) = 300. If you answered 720 you gave the reorder level. If you answered 1,420 you gave the maximum level. If you answered 520 you deducted minimum usage in the minimum lead time.

184. An employee is paid CU 16 an hour for a 40-hour week with a 25% overtime premium. The employee works 46 hours to complete a specific urgent job. What overtime cost is charged directly to that job?

A) CU 120
B) CU 24
C) CU 96
D) CU 760

Correct: A difficult Labour costing: overtime

Overtime of 6 hours is paid at 16 x 1.25 = CU 20, so CU 120. Because it arose for a specific job, the full overtime pay is charged to it. If you answered CU 24 you charged the premium only. If you answered CU 96 you charged the basic rate only. If you answered CU 760 you gave the gross wages.

185. Workers are paid for 900 hours at CU 20 an hour. Of these, 100 hours were idle. What is the labour cost per productive hour?

A) CU 22.50
B) CU 20.00
C) CU 2,000
D) CU 18.00

Correct: A difficult Labour costing: idle time

Total pay = 900 x 20 = 18,000. Productive hours = 800. Cost per productive hour = 18,000 / 800 = CU 22.50. If you answered CU 20 you gave the hourly rate. If you answered CU 2,000 you gave the idle time cost. If you answered CU 18 you applied 90% to the rate instead of dividing.

186. A worker is paid CU 0.65 per unit with a guaranteed weekly wage of CU 312. The worker makes 520 units in the week. What is the gross pay?

A) CU 312
B) CU 650
C) CU 26
D) CU 338

Correct: D difficult Labour costing: piecework

Piece earnings = 520 x 0.65 = 338, which exceeds the guarantee, so pay is CU 338. If you answered CU 312 you paid the guarantee only. If you answered CU 650 you added the guarantee to the piece earnings. If you answered CU 26 you gave the excess over the guarantee.

187. Seven employees left in the year. Each leaver caused recruitment costs of CU 2,600, training costs of CU 1,700 and lost output of CU 1,100. What is the total cost of labour turnover?

A) CU 5,400
B) CU 37,800
C) CU 30,100
D) CU 4,300

Correct: B difficult Labour costing: turnover

Cost per leaver = 5,400. Total = 7 x 5,400 = CU 37,800. If you answered CU 5,400 you gave the cost of one leaver. If you answered CU 30,100 you left out lost output. If you answered CU 4,300 you gave the recruitment and training cost for one leaver.

188. A material costs CU 3.40 a kg. A purchase of 6,000 kg has a normal loss of 15% of input. What is the cost per usable kg?

A) CU 4.00
B) CU 3.40
C) CU 3.91
D) CU 2.89

Correct: A difficult Material costing: normal loss

Total cost = 20,400. Usable = 5,100 kg. Cost = CU 4.00. If you answered CU 3.40 you ignored the loss. If you answered CU 3.91 you added 15% to the price instead of dividing by 85%. If you answered CU 2.89 you deducted 15% from the price.

189. The standard time is 0.8 hours a unit. A team makes 900 units in 650 hours. The rate is CU 15 an hour and the team receives 60% of time saved as a bonus. What is the bonus?

A) CU 1,050
B) CU 630
C) CU 42
D) CU 10,800

Correct: B difficult Labour costing: incentive schemes

Standard hours = 720, hours saved = 70. Bonus = 70 x 15 x 60% = CU 630. If you answered CU 1,050 you paid the full time saved. If you answered CU 42 you gave the hours bonus, not CU. If you answered CU 10,800 you valued all standard hours.

190. A worker's gross salary is CU 4,500 a month. The employer also pays 10% pension and 4% social security contributions. What is the cost to the employer?

A) CU 4,500
B) CU 4,950
C) CU 5,130
D) CU 4,680

Correct: C difficult Labour costing: employment costs

Employer cost = 4,500 x 1.14 = CU 5,130. If you answered CU 4,500 you ignored employer contributions. If you answered CU 4,950 you added only the pension. If you answered CU 4,680 you added only social security.

191. Which TWO statements are correct? (1) Periodic weighted average cost gives one average price for all issues in the period. (2) IAS 2 requires inventory to be measured at the lower of cost and net realisable value. (3) In a period of rising prices, FIFO issue prices are higher than weighted average prices. (4) Selling costs are included in the cost of inventory.

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

Correct: C difficult Inventory valuation: IAS 2

In rising prices FIFO issues at the older, lower prices. Selling costs are excluded from the cost of inventory under IAS 2. If you chose (3) you reversed the FIFO price effect. If you chose (4) you included a cost that IAS 2 excludes.

192. Inventory of 800 units cost CU 35 each. The expected selling price is CU 38 and selling costs are CU 5 a unit. At what amount should inventory be carried?

A) CU 28,000
B) CU 30,400
C) CU 1,600
D) CU 26,400

Correct: D difficult Inventory valuation: NRV

IAS 2 requires the lower of cost (35) and net realisable value (38 - 5 = 33). 800 x 33 = CU 26,400. If you answered CU 28,000 you used cost. If you answered CU 30,400 you used the selling price. If you answered CU 1,600 you gave the write-down.

193. Annual costs of holding inventory: rent of the store CU 6,000 (unavoidable), insurance on inventory value CU 2,500, interest at 9% on average inventory of CU 40,000, handling that varies with inventory CU 1,100. What holding cost is relevant to an inventory decision?

A) CU 13,200
B) CU 4,700
C) CU 7,200
D) CU 3,600

Correct: C difficult Inventory management: holding costs

Only costs that vary with inventory level are relevant: 2,500 + 3,600 + 1,100 = CU 7,200. If you answered CU 13,200 you included the unavoidable rent. If you answered CU 4,700 you left out insurance. If you answered CU 3,600 you included interest only.

194. Opening inventory was 250 units at CU 12. A receipt of 350 units at CU 14 followed. Using FIFO, what is the cost of an issue of 400 units?

A) CU 5,600
B) CU 5,100
C) CU 4,800
D) CU 5,200

Correct: B difficult Inventory valuation: perpetual FIFO

FIFO: 250 x 12 + 150 x 14 = 3,000 + 2,100 = CU 5,100. If you answered CU 5,600 you used the latest price for all units. If you answered CU 4,800 you used the oldest price for all units. If you answered CU 5,200 you used the simple average of the two prices.

195. Gross wages were CU 82,000. This includes idle time CU 5,400, indirect labour CU 11,600 and overtime premium CU 4,000. How much is debited to production overhead?

A) CU 61,000
B) CU 21,000
C) CU 15,600
D) CU 17,000

Correct: B difficult Labour costing: wages analysis

Overhead = 5,400 + 11,600 + 4,000 = CU 21,000. The remaining CU 61,000 is direct labour. If you answered CU 61,000 you gave the direct labour. If you answered CU 15,600 you left out idle time. If you answered CU 17,000 you left out the overtime premium.

196. Opening inventory was 600 units at CU 15. Purchases were 600 units at CU 17 and then 600 units at CU 19. Issues in the period were 1,200 units. Using FIFO and periodic valuation, what is the closing inventory?

A) CU 10,200
B) CU 19,200
C) CU 9,000
D) CU 11,400

Correct: D difficult Inventory valuation: FIFO

Closing inventory is 600 units, all from the latest purchase: 600 x 19 = CU 11,400. If you answered CU 10,200 you used the weighted average cost of CU 17. If you answered CU 19,200 you gave the cost of issues. If you answered CU 9,000 you valued the units at the opening price of CU 15.

197. Opening inventory was 400 units at CU 9. A receipt of 600 units at CU 14 was followed by an issue of 700 units. Using perpetual weighted average cost, what is the cost of the issue?

A) CU 7,800
B) CU 8,400
C) CU 8,050
D) CU 9,800

Correct: B difficult Inventory valuation: weighted average

After the receipt: 1,000 units costing 12,000, an average of CU 12. Issue = 700 x 12 = CU 8,400. If you answered CU 7,800 you used FIFO. If you answered CU 8,050 you averaged the two prices (9 and 14) without weighting. If you answered CU 9,800 you used the latest price.

198. Usage is between 30 and 70 units a day (average 50). The lead time is between 4 and 8 days (average 6). The reorder quantity is 1,200 units. What is the maximum inventory level?

A) 1,760 units
B) 1,640 units
C) 1,460 units
D) 560 units

Correct: B difficult Inventory control: maximum level

Reorder level = 70 x 8 = 560. Maximum level = 560 + 1,200 - (30 x 4) = 1,640. If you answered 1,760 you did not deduct the minimum usage in the minimum lead time. If you answered 1,460 you deducted average usage in the average lead time. If you answered 560 you gave the reorder level.

199. An employee is paid CU 18 an hour for a 40-hour week and a 50% overtime premium. The employee works 47 hours because of general pressure of work. What is charged to overhead as the overtime premium?

A) CU 189
B) CU 126
C) CU 63
D) CU 909

Correct: C difficult Labour costing: overtime

The 7 overtime hours attract a premium of 18 x 50% = CU 9 each, so CU 63. The basic rate is charged to the product. If you answered CU 189 you charged the full overtime pay. If you answered CU 126 you charged the basic rate of overtime hours. If you answered CU 909 you gave the gross wages.

200. Workers are paid for 1,000 hours at CU 15 an hour. Of these, 200 hours were idle. What is the labour cost per productive hour?

A) CU 15.00
B) CU 3,000
C) CU 18.75
D) CU 12.00

Correct: C difficult Labour costing: idle time

Total pay = 1,000 x 15 = 15,000. Productive hours = 800. Cost per productive hour = 15,000 / 800 = CU 18.75. If you answered CU 15 you gave the hourly rate. If you answered CU 3,000 you gave the idle time cost. If you answered CU 12 you applied 80% to the rate instead of dividing.