How often Accounting for material, labour and overheads; inventory valuation is asked

Where it was asked

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The questions

1. Oct/Nov 2015, Q4.92 marks · multiple choice

   For Question 4, answer each multiple-choice item by writing down the sub-question number together with the letter of the correct alternative (for example, 1.a). Note that when rounding is required you may need to choose the option closest to your calculated answer. Tennis Shoes (Pty) Ltd buys tennis shoes and resells them in bulk to retailers. On 1 June 2015 the company held 300 pairs of shoes in stock, valued at R650 per pair. During June 2015 the following transactions took place: on 3 June the company bought a further 500 pairs at R700 per pair; on 8 June it sold 400 pairs at a selling price of R1 000 per pair; and on 17 June it bought a further 200 pairs at R720 per pair, also paying an additional R6 000 in freight costs. Using the first-in-first-out (FIFO) method of inventory valuation, determine the value of inventory held immediately after the 17 June 2015 transaction.

2. Oct/Nov 2015, Q4.102 marks · multiple choice

   For Question 4, answer each multiple-choice item by writing down the sub-question number together with the letter of the correct alternative (for example, 1.a). Note that when rounding is required you may need to choose the option closest to your calculated answer. Using the same Tennis Shoes (Pty) Ltd data for June 2015 (opening inventory on 1 June of 300 pairs at R650 per pair; purchase on 3 June of 500 pairs at R700 per pair; sale on 8 June of 400 pairs at R1 000 per pair; and purchase on 17 June of 200 pairs at R720 per pair plus R6 000 freight), calculate the weighted average cost per pair of shoes immediately after the 3 June 2015 transaction, assuming the weighted average method of inventory valuation is used.

3. May/Jun 2015, Q5.22 marks · multiple choice

   Candidates must answer the multiple-choice questions by writing, for each sub-question, the sub-question number together with the letter of the chosen alternative in the answer book (for example: 1.a). Note that where an alternative 'e' is offered, it should NOT be selected merely because the candidate's own answer differs from the other options only due to rounding. For Leaf Extracts Shampoo (Pty) Ltd's 2015 financial year, budgeted overheads were R480 000 while actual overheads were R520 000. Litres produced were budgeted at 14 000 for Jasmine Shampoo and 4 000 for Mint Shampoo, with actual production of 13 500 litres and 4 500 litres respectively. Total machine hours for production were budgeted at 28 000 for Jasmine Shampoo and 4 000 for Mint Shampoo, with actual machine hours of 30 000 and 3 800 respectively. The 2015 budgeted figures represent a normal, average year, and overheads are allocated on the basis of machine hours using normal average long-term capacity per year. Determine the total applied overheads for the Mint Shampoo product for the year.

4. May/Jun 2015, Q5.72 marks · multiple choice

   Candidates must answer the multiple-choice questions by writing, for each sub-question, the sub-question number together with the letter of the chosen alternative in the answer book (for example: 1.a). Note that where an alternative 'e' is offered, it should NOT be selected merely because the candidate's own answer differs from the other options only due to rounding. During April 2015 the following inventory transactions were recorded: on 1 April opening inventory was 1 000 units at R10 each; on 5 April purchases of 2 000 units at R8 each were made, with freight costs paid of R1 000; on 7 April a further purchase of 500 units at R11 each was made; and on 10 April, 3 200 units were issued to production. Determine the total value of inventory on hand at the close of business on 10 April 2015 using the first-in-first-out (FIFO) method of inventory valuation.

5. May/Jun 2015, Q5.82 marks · multiple choice

   Candidates must answer the multiple-choice questions by writing, for each sub-question, the sub-question number together with the letter of the chosen alternative in the answer book (for example: 1.a). Note that where an alternative 'e' is offered, it should NOT be selected merely because the candidate's own answer differs from the other options only due to rounding. Using the same April 2015 inventory transactions (1 April: opening inventory of 1 000 units at R10 each; 5 April: purchase of 2 000 units at R8 each with freight costs of R1 000 paid; 7 April: purchase of 500 units at R11 each; 10 April: issue of 3 200 units to production), determine the value of one unit of inventory at the close of business on 5 April 2015 using the weighted average method of inventory valuation.

6. Oct/Nov 2014, Q1.52.5 marks · multiple choice

   Question 1 consists of eight multiple-choice items (here numbered 1.1–1.8), each apparently worth 2.5 marks so that the eight items together make up the 20 marks allotted to this question, to be completed within 24 minutes. The items are based on several unrelated costing scenarios drawn from divisions of Blue Sky Industries Limited, a large diversified listed company. The Sports Entertainment division imports the Blue Ray 3D TV. During September 2014 the following movements occurred: on 31 August 2014 the closing stock was 351 units valued at R3 845,00 each; on 3 September 2014, 450 units were purchased for a total of R1 755 000; on 4 September 2014, import freight of R390,00 per unit was incurred on the 450 TVs; on 11 September 2014, 500 units were sold at R9 000,00 each; on 18 September 2014, 300 units were purchased for a total of R1 185 000; on 19 September 2014, import freight of R350,00 per unit was incurred on the 300 TVs; on 23 September 2014, 100 units were sold at R8 750,00 each; and on 23 September 2014 a delivery freight cost of R420,00 per unit was incurred on those 100 TVs sold. Calculate the value of the closing stock on 30 September 2014 using the First-In-First-Out (FIFO) basis of accounting.

7. Oct/Nov 2014, Q1.62.5 marks · multiple choice

   Question 1 consists of eight multiple-choice items (here numbered 1.1–1.8), each apparently worth 2.5 marks so that the eight items together make up the 20 marks allotted to this question, to be completed within 24 minutes. The items are based on several unrelated costing scenarios drawn from divisions of Blue Sky Industries Limited, a large diversified listed company. Using the same September 2014 stock movement information for the Sports Entertainment division's Blue Ray 3D TV (closing stock of 351 units at R3 845,00 on 31 August; purchases of 450 units for R1 755 000 on 3 September with import freight of R390,00 per unit on 4 September; sales of 500 units at R9 000,00 each on 11 September; purchases of 300 units for R1 185 000 on 18 September with import freight of R350,00 per unit on 19 September; and sales of 100 units at R8 750,00 each on 23 September with delivery freight of R420,00 per unit), calculate the value of the closing stock on 30 September 2014 using the weighted average cost basis of accounting.

8. Oct/Nov 2014, Q1.72.5 marks · multiple choice

   Question 1 consists of eight multiple-choice items (here numbered 1.1–1.8), each apparently worth 2.5 marks so that the eight items together make up the 20 marks allotted to this question, to be completed within 24 minutes. The items are based on several unrelated costing scenarios drawn from divisions of Blue Sky Industries Limited, a large diversified listed company. Assume, for the Sports Entertainment division's Blue Ray 3D TV, that all stock on hand was completely sold out on 11 September 2014, leaving no stock available on 12 September 2014. Given that further purchases and sales then occurred as previously described (300 units purchased on 18 September 2014 for a total of R1 185 000, with import freight of R350,00 per unit on 19 September 2014, followed by a sale of 100 units at R8 750,00 each on 23 September 2014, with delivery freight of R420,00 per unit on that sale), calculate the gross profit percentage earned on the units sold on 23 September 2014.

9. Oct/Nov 2014, Q2(a)15 marks

   Beta Limited kept records of its purchases and issues of material Alpha during July 2014, as follows: on 1 July there was an opening inventory of 200 units at R5 each; on 4 July the company purchased 1 500 units at a 10% discount off the opening inventory price; on 8 July it purchased a further 1 000 units at R5,50 each, with freight costs of R500 paid on this purchase; on 9 July, 2 000 units were issued to production; on 12 July, 500 of the units bought on 8 July were returned to the supplier; and on 15 July, 300 of the units issued to production on 9 July were returned to the store. Beta Limited applies the first-in-first-out (FIFO) method of inventory valuation. Using the first-in-first-out (FIFO) method of inventory valuation, calculate the closing inventory of material Alpha for Beta Limited as at 31 July 2014, taking into account the opening inventory of 200 units at R5 each, the purchase of 1 500 units on 4 July at a 10% discount on the R5 price, the purchase of 1 000 units on 8 July at R5,50 each plus R500 freight costs, the issue of 2 000 units to production on 9 July, the return of 500 units (from the 8 July purchase) to the supplier on 12 July, and the return of 300 units (from the 9 July issue) to the store on 15 July.

10. Oct/Nov 2014, Q2(b)3 marks

    Beta Limited kept records of its purchases and issues of material Alpha during July 2014, as follows: on 1 July there was an opening inventory of 200 units at R5 each; on 4 July the company purchased 1 500 units at a 10% discount off the opening inventory price; on 8 July it purchased a further 1 000 units at R5,50 each, with freight costs of R500 paid on this purchase; on 9 July, 2 000 units were issued to production; on 12 July, 500 of the units bought on 8 July were returned to the supplier; and on 15 July, 300 of the units issued to production on 9 July were returned to the store. Beta Limited applies the first-in-first-out (FIFO) method of inventory valuation. Prepare the journal entry to record the transaction that took place on 12 July 2014, being the return to the supplier of 500 units of material Alpha that had been purchased on 8 July 2014.

11. Oct/Nov 2014, Q2(c)2 marks

    Beta Limited kept records of its purchases and issues of material Alpha during July 2014, as follows: on 1 July there was an opening inventory of 200 units at R5 each; on 4 July the company purchased 1 500 units at a 10% discount off the opening inventory price; on 8 July it purchased a further 1 000 units at R5,50 each, with freight costs of R500 paid on this purchase; on 9 July, 2 000 units were issued to production; on 12 July, 500 of the units bought on 8 July were returned to the supplier; and on 15 July, 300 of the units issued to production on 9 July were returned to the store. Beta Limited applies the first-in-first-out (FIFO) method of inventory valuation. Prepare the journal entry to record the return on 15 July 2014 of 300 units of material Alpha, which had originally been issued to production on 9 July 2014, back to the store.

12. Oct/Nov 2013, Q1.12 marks · multiple choice

    Question 1 is a multiple-choice section made up of ten short questions, numbered 1.1 to 1.10, each worth 2 marks. For each one you must write down the question number together with the letter (A, B, C or D) of the option you consider correct. Abbettery (Pty) Ltd is a construction company that builds large shopping malls as well as residential complexes, and it values its inventory using the FIFO method. Its inventory records for October 2013 show an opening inventory on 1 October of 150 units at R6,50 each, and a purchase on 3 October of 1 200 units at R6,80 each; freight charges equal to 10% of the cost price per unit apply, and the average ZAR/USD exchange rate for that day was 9,9275. On 5 October, 800 units were issued, and on 8 October 25 units (out of units bought on 8 October) were returned to the supplier. Using the FIFO method, what is the value of the inventory purchased on 3 October 2013? Choose the correct option: A. R8 796; B. R8 061; C. R8 976; D. R8 160.

13. Oct/Nov 2013, Q1.22 marks · multiple choice

    Question 1 is a multiple-choice section made up of ten short questions, numbered 1.1 to 1.10, each worth 2 marks. For each one you must write down the question number together with the letter (A, B, C or D) of the option you consider correct. Referring again to Abbettery (Pty) Ltd, which uses the FIFO method of inventory valuation, which one of the following statements correctly describes this inventory valuation method? A. Materials received or purchased first are issued last; B. Materials received or purchased first are issued first; C. Materials with the highest value are issued first; D. Materials with the lowest value are issued last.

14. May/Jun 2013, Q1.12 marks · multiple choice

    Question 1 is a multiple-choice question section made up of ten individual questions, numbered 1.1 to 1.10, each worth 2 marks. For each one you must write down the question number together with the letter (A, B, C or D) of the option you believe is correct. Shanduka Ltd, a company based in Sandton, recorded the following purchases and issues of a material called 'Gold' during December 2012: on 1 December the opening inventory was 300 units at R6,50 each; on 3 December a purchase of 350 units at R6,90 each was made; and on 7 December 400 units were issued to production. You are also told that, for the industry as a whole, total freight charges relating to orders placed in December amounted to R294, and that Shanduka's massive market share means it accounts for 50% of this industry total. Using the FIFO method of inventory valuation, what is the value of the inventory remaining on 7 December, immediately after the issue of 400 units of Gold to production?

15. May/Jun 2013, Q1.22 marks · multiple choice

    Question 1 is a multiple-choice question section made up of ten individual questions, numbered 1.1 to 1.10, each worth 2 marks. For each one you must write down the question number together with the letter (A, B, C or D) of the option you believe is correct. While studying in the library for your MAC2601 exam, a fellow student asks you to confirm whether the following four statements about inventory valuation are correct: (i) issuing materials at weighted average cost assumes that each batch taken from the storeroom is made up of the same quantities from each consignment in inventory at the date of issue; (ii) the flow of materials dictates the flow of costs when the FIFO method is used; (iii) during times of inflation, using the FIFO method will result in issues to production being made at 'cheaper' prices; and (iv) the weighted average method divides the total cost of all materials of a particular class by the number of units on hand for that class in order to find the average price. Which combination of these statements is true?

16. May/Jun 2013, Q6(a)5 marks

    Gidima Ltd, a company based in Centurion, was recently awarded a contract by the national Department of Home Affairs to supply smart ID cards to replace the current version of identity books used in South Africa. The company is excited about the prospects of earning substantial profits from this contract, as suggested by recent South African census population figures. Gidima Ltd has asked you to help compute the budgeted cost of each smart ID card as well as the budgeted profit, and the company applies the absorption costing method of inventory valuation. The budgeted cost of a smart ID card is built up as follows: direct materials consist of specialised plastic at 2,5 metres per card costing R3,50 per metre; direct labour requires 2 hours per card; the variable manufacturing overhead recovery rate is R1,50 per hour; the selling price per smart ID card is R125; and variable selling costs equal 5% of the selling price per card and vary with the number of units sold. Additional information: variable manufacturing overheads vary with labour hours worked; total budgeted fixed manufacturing overheads for the period amount to R550 000 and are recovered based on direct labour hours, with the plant's average long-run capacity being 20 000 ID cards per annum; direct labour is budgeted at R8 per hour; and there was no budgeted opening or closing inventory for the period. Using the information given for Gidima Ltd, calculate the budgeted manufacturing cost of one smart ID card, rounding your answer to two decimal places.

17. May/Jun 2013, Q6(b)5 marks

    Gidima Ltd, a company based in Centurion, was recently awarded a contract by the national Department of Home Affairs to supply smart ID cards to replace the current version of identity books used in South Africa. The company is excited about the prospects of earning substantial profits from this contract, as suggested by recent South African census population figures. Gidima Ltd has asked you to help compute the budgeted cost of each smart ID card as well as the budgeted profit, and the company applies the absorption costing method of inventory valuation. The budgeted cost of a smart ID card is built up as follows: direct materials consist of specialised plastic at 2,5 metres per card costing R3,50 per metre; direct labour requires 2 hours per card; the variable manufacturing overhead recovery rate is R1,50 per hour; the selling price per smart ID card is R125; and variable selling costs equal 5% of the selling price per card and vary with the number of units sold. Additional information: variable manufacturing overheads vary with labour hours worked; total budgeted fixed manufacturing overheads for the period amount to R550 000 and are recovered based on direct labour hours, with the plant's average long-run capacity being 20 000 ID cards per annum; direct labour is budgeted at R8 per hour; and there was no budgeted opening or closing inventory for the period. Using the information given for Gidima Ltd, calculate the total budgeted profit if the company manufactures and supplies 9 000 smart ID cards to the Department of Home Affairs.