Deck 8: Accounting for Inventory

Question 1

Inventory is valued in a Balance Sheet (Statement of Financial Position) at:

A) Selling price
B) Cost price
C) Net realizable value
D) Lower of cost and net realizable value

Answer 1

Lower of cost and net realizable value

Question 2

Given the following information: Sales €500,000; Purchases €325,000; Stock at beginning of period €50,000; Stock at end of period €60,000; the gross profit is:

A) €185,000
B) €175,000
C) €165,000
D) €155,000

Answer 2

€185,000

Question 3

In a manufacturing business, the completion of production results in the following flow of costs for inventory:

A) Decrease raw materials and increase finished goods
B) Decrease work in progress and increase cost of sales
C) Decrease work in progress and increase finished goods
D) Decrease finished goods and increase cost of sales

Answer 3

Decrease work in progress and increase finished goods

Question 4

A business purchases stock on three separate occasions $$\begin{array} { r r } \text { Units } & \text { Total } \\\text { bought } & \text { Cost } € \\3500 & 8050 \\3000 & 7110 \\4000 & 9600 \\\hline 10500 & 24760\end{array}$$

-Using the weighted average method, the cost of sales is:

A) €10,611
B) €10,785
C) €13,975
D) €14,149

Question 5

A business purchases stock on three separate occasions $$\begin{array} { r r } \text { Units } & \text { Total } \\\text { bought } & \text { Cost } € \\3500 & 8050 \\3000 & 7110 \\4000 & 9600 \\\hline 10500 & 24760\end{array}$$

-Using the first in-first out (FIFO) method, the cost of sales is:

A) €10,611
B) €10,785
C) €13,975
D) €14,149

Question 6

A business purchases stock on three separate occasions $$\begin{array} { r r } \text { Units } & \text { Total } \\\text { bought } & \text { Cost } € \\3500 & 8050 \\3000 & 7110 \\4000 & 9600 \\\hline 10500 & 24760\end{array}$$

-Using the weighted average method, the value of inventory is:

A) €10,611
B) €10,785
C) €13,975
D) €14,149

Question 7

A business purchases stock on three separate occasions $$\begin{array} { r r } \text { Units } & \text { Total } \\\text { bought } & \text { Cost } € \\3500 & 8050 \\3000 & 7110 \\4000 & 9600 \\\hline 10500 & 24760\end{array}$$

-Using the first in-first out (FIFO) method, the value of inventory is:

A) €10,611
B) €10,785
C) €13,975
D) €14,149

Question 8

The inventory value and cost of sales for unique products manufactured to satisfy a customer's order would be calculated using:

A) Retail method of costing
B) Job costing
C) Process costing
D) Long term contract costing

Question 9

In June, XYZ Engineering received an order to produce a batch of 100 Maxilons. Each batch requires 50 purchased components and 75 labour hours. XYZ was unable to complete the order until July. The following transactions took place during the month of June: $\begin{array}{|l|r|l|}\hline & \text { Units } &{\text { Unit cost }} \\\hline \text { Purchase of components } & 75 & £30 \\\hline \text { Issue of components to job }& 30 & \\\hline \text { Labour to produce finished goods } & \text { Hours } & \text { Cost/hour } \\\hline & 40 & £45\\\hline\end{array}$ The following transactions took place during the month of July: $\begin{array}{|l|r|r|}\hline \text { Issue of components to job } & \text { Units } & \text { Unit cost } \\\hline & 20 & \\\hline & \text { Hours } & \text { Cost/hour } \\\hline \text { Labour to produce finishedgoods }& 35 & £45\\\hline \text { Completed } 100 \text { Maxilons } \\\hline\end{array}$

-The cost of sales (excluding any overhead) for the completed job is:

A) £5,625
B) £4,875
C) £2,700
D) £2,175

Question 10

In June, XYZ Engineering received an order to produce a batch of 100 Maxilons. Each batch requires 50 purchased components and 75 labour hours. XYZ was unable to complete the order until July. The following transactions took place during the month of June: $\begin{array}{|l|r|l|}\hline & \text { Units } &{\text { Unit cost }} \\\hline \text { Purchase of components } & 75 & £30 \\\hline \text { Issue of components to job }& 30 & \\\hline \text { Labour to produce finished goods } & \text { Hours } & \text { Cost/hour } \\\hline & 40 & £45\\\hline\end{array}$ The following transactions took place during the month of July: $\begin{array}{|l|r|r|}\hline \text { Issue of components to job } & \text { Units } & \text { Unit cost } \\\hline & 20 & \\\hline & \text { Hours } & \text { Cost/hour } \\\hline \text { Labour to produce finishedgoods }& 35 & £45\\\hline \text { Completed } 100 \text { Maxilons } \\\hline\end{array}$

-The cost of materials and labour charged to the job during the month of July is:

A) £5,625
B) £4,875
C) £2,700
D) £2,175

Question 11

In June, XYZ Engineering received an order to produce a batch of 100 Maxilons. Each batch requires 50 purchased components and 75 labour hours. XYZ was unable to complete the order until July. The following transactions took place during the month of June: $\begin{array}{|l|r|l|}\hline & \text { Units } &{\text { Unit cost }} \\\hline \text { Purchase of components } & 75 & £30 \\\hline \text { Issue of components to job }& 30 & \\\hline \text { Labour to produce finished goods } & \text { Hours } & \text { Cost/hour } \\\hline & 40 & £45\\\hline\end{array}$ The following transactions took place during the month of July: $\begin{array}{|l|r|r|}\hline \text { Issue of components to job } & \text { Units } & \text { Unit cost } \\\hline & 20 & \\\hline & \text { Hours } & \text { Cost/hour } \\\hline \text { Labour to produce finishedgoods }& 35 & £45\\\hline \text { Completed } 100 \text { Maxilons } \\\hline\end{array}$

-The value of work in progress at the end of June is:

A) £5,625
B) £4,875
C) £2,700
D) £2,175

Question 12

Bixco uses a process costing system and the weighted average method for its production of synthetic oils.During January materials totalling $300,000 were purchased, of which $150,000 was issued to production cost. Conversion costs of $100,000 were incurred. Production volume was 200,000 kg and of this 150,000 kg was sold. The cost of sales for January was:

A) $250,000
B) $225,000
C) $187,500
D) $162,500

Question 13

Peezo Inc uses a process costing system and the weighted average method for partially completed units. Production costs during January comprised materials issued at the beginning of the production process costing $120,000 and conversion costs of $80,000. At the end of the month 10,000 units had been completed and placed into finished goods inventory while a further 5,000 units remained in work-in-progress, 80% complete as to conversion costs. The value of work-in-progress at the end of January is:

A) $62,857
B) $66,667
C) $71,450
D) $100,000

Question 14

Maxwell Consulting has been engaged to undertake a software development project on behalf of its client. The agreed and fixed contract price is €2 million. Maxwell expects its total costs to complete the project to be €1.25 million. At the end of the 2015 financial year, Maxwell has incurred costs of €750,000 and expects to incur a further €600,000 to complete the project in the following financial year. The amount of profit that Maxwell should include in its financial statements for 2015 is:

A) €312,000
B) €390,000
C) €450,000
D) €650,000

Question 15

Use the following information from the financial statements of ABC Co for the 2015 financial year : $$\begin{array} { | l | r | } \hline & £ \\\hline \text { Sales } & 600,000 \\\hline \text { Materials used in production } & 120,000 \\\hline \text { Labour used in production } & 70,000 \\\hline \text { Manufacturing overheads } & 50,000 \\\hline \text { Less selling \& admin expenses } & 200,000 \\\hline \text { Work in progress at beginning of period } & 45,000 \\\hline \text { Work in progress at end of period } & 60,000 \\\hline \text { Finished goods at beginning of period } & 125,000 \\\hline \text { Finished goods at end of period } & 100,000 \\\hline\end{array}$$

-The cost of goods manufactured for ABC Co for the 2015 financial year is:

A) £215,000
B) £225,000
C) £255,000
D) £265,000

Question 16

Use the following information from the financial statements of ABC Co for the 2015 financial year : $$\begin{array} { | l | r | } \hline & £ \\\hline \text { Sales } & 600,000 \\\hline \text { Materials used in production } & 120,000 \\\hline \text { Labour used in production } & 70,000 \\\hline \text { Manufacturing overheads } & 50,000 \\\hline \text { Less selling \& admin expenses } & 200,000 \\\hline \text { Work in progress at beginning of period } & 45,000 \\\hline \text { Work in progress at end of period } & 60,000 \\\hline \text { Finished goods at beginning of period } & 125,000 \\\hline \text { Finished goods at end of period } & 100,000 \\\hline\end{array}$$

-The cost of sales for ABC Co for the 2015 financial year is:

A) £200,000
B) £225,000
C) £250,000
D) £265,000

Question 17

Use the following information from the financial statements of ABC Co for the 2015 financial year : $$\begin{array} { | l | r | } \hline & £ \\\hline \text { Sales } & 600,000 \\\hline \text { Materials used in production } & 120,000 \\\hline \text { Labour used in production } & 70,000 \\\hline \text { Manufacturing overheads } & 50,000 \\\hline \text { Less selling \& admin expenses } & 200,000 \\\hline \text { Work in progress at beginning of period } & 45,000 \\\hline \text { Work in progress at end of period } & 60,000 \\\hline \text { Finished goods at beginning of period } & 125,000 \\\hline \text { Finished goods at end of period } & 100,000 \\\hline\end{array}$$

-The gross profit for ABC Co for the 2015 financial year is:

A) £150,000
B) £225,000
C) £250,000
D) £350,000

Question 18

Use the following information from the financial statements of ABC Co for the 2015 financial year : $$\begin{array} { | l | r | } \hline & £ \\\hline \text { Sales } & 600,000 \\\hline \text { Materials used in production } & 120,000 \\\hline \text { Labour used in production } & 70,000 \\\hline \text { Manufacturing overheads } & 50,000 \\\hline \text { Less selling \& admin expenses } & 200,000 \\\hline \text { Work in progress at beginning of period } & 45,000 \\\hline \text { Work in progress at end of period } & 60,000 \\\hline \text { Finished goods at beginning of period } & 125,000 \\\hline \text { Finished goods at end of period } & 100,000 \\\hline\end{array}$$

-The value of inventory in ABC Co's Balance Sheet at the end of 2015 is:

A) £145,000
B) £160,000
C) £170,000
D) £185,000