Cost Accounting - Materials

1. A delivery note (advice note) is best described as:

A. Documentation sent by the supplier requesting payment for the goods;

B. Documentation raised by the customer to record the delivery details of the
goods send by the supplier;
C. Documentation raised by the customer requesting that an order is place for
materials;
D. Documentation sent by the supplier to the customer along with the goods
detailing the specifics of the order (item type and quantity.)

2. Physical stock is the amount of stock that the business has according to its
accounting records (ledgers).

Is this statement true or false?

A. True.
B. False.

3. Reasons for discrepancies between the physical stock and the book stock may
be due to which of the TWO following reasons.

A. Physical stock counting errors.

B. Errors in the ledger accounts for the payment of goods bought on credit.
C. Theft of goods.
D. Errors in the memorandum ledgers on recoding a purchase of goods.

4. Which of the following is not a reason for holding stocks:

A. Ensure production works effectively.

B. Ensure that the warehouse is full and space is not wasted.
C. Take advantage of bulk/quantity discounts from suppliers.
D. Meet unexpected demand or high levels of demand.

MAS Educational Centre Page 1

Cost Accounting - Materials

5. Which of the following are correct with regards to inventory?

i. The larger an order size placed, the lower the annual holding costs become,
yet the higher the annual ordering costs.
ii. A delivery note is raised to record the delivery details for the goods entering
into stock.
iii. Stock outs occur when a unit is demanded by a customer and cannot be
supplied.

A. (i), (ii) and (iii).

B. (i) and (ii) only.
C. (i) and (iii) only.
D. (iii) only.

6. The following information relates to a product produced by a chocolate

manufacturer.

Average daily usage 45 units per day

Maximum daily usage 60 units per day
Minimum daily usage 35 units per day
Lead time 8-10 days

What is the re-order level?

A. 280 units.
B. 405 units.
C. 450 units.
D. 600 units.

MAS Educational Centre Page 2

Cost Accounting - Materials

7. A company always determines its order quantity for a raw material by using
the Economic Order Quantity (EOQ) model.

What would be the effects on the EOQ and the total annual holding cost of a
decrease in the cost of ordering a batch of raw material?

Annual
EOQ Holding Cost
A. Higher Lower
B. Higher Higher
C. Lower Lower
D. Lower Higher

8. Which one of the following would not normally result from the adoption of a
JIT purchasing system?

A. Closer relationship with the suppliers.

B. Lower levels of inventories.
C. Lower levels of receivables.
D. Better quality supplies obtained.

9. The demand for a product is 15,000 units for a six month period. Each unit of
product has a purchase price of $20 and the ordering costs are $25 per order
placed.

The annual holding costs of one unit of product is 5% of its purchase price.
What is the Economic Order Quantity (to the nearest unit)?

A. 866.
B. 1,225.
C. 980.
D. 1,095.

MAS Educational Centre Page 3

 Cost Accounting - Materials

10. A manufacturing company has the following ledger account, relating to raw
material.
Raw Material control account

$ $
Bal b/f (opening inventory) 5,000 Balancing figure 43,100
Purchase of raw material 41,600 Bal c/f 3,500
46,600 46,600
Bal b/f 3,500

The balancing figure of 43,100 represents?

A. Raw material transferred to WIP.

B. Raw material transferred to finished goods.
C. Closing stock of raw material.
D. Purchase of raw material.

11. What is the formula for the minimum inventory level?

A. Re-order level – (average usage x average lead time).

B. Re-order level + re – order quantity (minimum lead time x minimum
demand).
C. Maximum usage x maximum lead time.
D. Re-order level – (minimum usage x minimum lead time).

12. If the free inventory is 22,000 units, physical inventory of 19,000 units and
29,000 units outstanding on existing customer orders, what is the number of
units of inventory on order with suppliers?

A. 12,000 units.
B. 26,000 units.
C. 32,000 units.

MAS Educational Centre Page 4

Cost Accounting - Materials

13. A retailer of laptop computers has the following information in relation to one
of its top selling products.

Average sales 80 per day

Maximum sales 95 per day
Minimum sales 70 per day
Lead time 3–4 weeks
Re – order quantity 2,150 units.

The maximum inventory level is __________ units.

14. What is a GRN raised for?

A. Issuing good from stores to production.

B. Returning goods to stores issued in error.
C. Receiving goods from a supplier.

15. Which of the following may lead to a difference between physical stock and
book stock of raw material stocks?

i. Material losses in process.

ii. Pilferage is the stores.
iii. Issues to production not recorded by a material requisition.

A. (i) and (ii).

B. (i) and (iii).
C. (ii) and (iii).
D. All of the above.

MAS Educational Centre Page 5

Cost Accounting - Materials

16. A company has the following information regarding its ordering process. Cost
of holding one unit per annum is $2/unit. The cost of placing one order is $25.
Annual demand is 10,000 units. What is the annual holding cost incurred?

A. 500 units.
B. 1,000 units.
C. $500.
D. $1000

17. A company uses the economic order quantity model to establish the minimum
cost of holding and ordering stock. We are given the following information,
holding cost per is $0,5/unit/annum and the economic order quantity has
already been calculated to be 440 units. Total demand was given at 20,500
units per annum.

What is the total annual cost of holding stock?

A. $110.
B. $220.
C. $10,250.
D. Cannot be calculated from this data.

MAS Educational Centre Page 6

Cost Accounting - Materials
18. A company uses the EOQ model and has the following cost information.
Holding cost is $4/unit per month. Ordering costs are $15 per order. Annual
demand is 12,000 units.

What is the EOQ for this company?

A. 300 units.
B. 225 units.
C. 87 units.
D. 60 units.

A company has the following information regarding stock levels and

demand:

Maximum Minimum
Usage per month 2,000 units. 1,000 units.
Lead time 3 months 1 month
Re-order quantity = 6,500 units

There are three question relating to this information.

19. What is the reorder level?

A. 2,000 units.
B. 5,000 units.
C. 6,000 units.
D. Cannot be calculated from available information.

20. What is the maximum level?

A. 2,000.
B. 6,000.
C. 11,500.
D. Cannot be calculated from available information.

MAS Educational Centre Page 7

Cost Accounting - Materials

21. What is the minimum level or buffer stock?

A. 2,000.
B. 3,000.
C. 3,500.
D. Cannot be calculated from available information.

22. A company uses 9,000 units of a component per annum. The component has a
purchase price of $40 per unit and the cost of placing an order is $160. The
annual holding cost of one component is equal to 8% of its purchase price.

What is the Economic Order Quantity (to the nearest unit) of the component?

A. 530.
B. 671.
C. 949.
D. 1,342.

23. A company determines its order quantity for a component using the Economic
Order Quantity (EOQ) model.

What would be the effects on the EOQ and the total annual ordering cost of an
increase in the annual cost of holding one unit of the component in stock?

Annual Holding
EOQ Cost
A. Lower Higher
B. Higher Lower
C. Lower No effect
D. Higher No effect

MAS Educational Centre Page 8

Cost Accounting - Materials

24. When considering the economic batch quantity model what does (1 – D/R)
represent?

A. The rate at which production decreases.

B. The rate at which production increases.
C. The rate at which stock decreases.
D. The rate at which stock increases.

25. Data relating to a particular stores item are as follows:

Average daily usage 400 units.

Maximum daily usage 520 units.
Minimum daily usage 180 units.
Lead time for replenishment of stock 10 to 15 days.
Reorder quantity 8,000 units.

What is the reorder level (in units) which avoids stockouts?

A. 5,000.
B. 6,000.
C. 7,800.
D. 8,000.

26. Which of the following statements is correct in relation to stock:

A. Book stock and physical stock are the same.

B. Book stock is the stock on order with suppliers, physical stock is the stock
held in the stores department.
C. Book stock is the stock recorded in the accounting records, physical stock is
the stock held in the stores department.
D. Book stock is the stock available for use, physical stock is the stock being
used on existing orders.

MAS Educational Centre Page 9

Cost Accounting - Materials

27. Which of the following would cause a difference between book stock and
physical stock:

A. Accounts receivable balance recorded incorrectly in the company accounts.

B. Account payable balance recorded incorrectly in the company accounts.
C. Goods received note recorded incorrectly in the company accounts.
D. Late delivery of goods.

28. A company has the following raw materials control account:

Raw Material Control Account

$ $
Balance b/d 10,000 Y 15,000
X Overhead a/c 3,000
12,000
Balance c/d 4,000
22,000 22000
Balance c/d 4000

Which of the following statements is correct:

i. Purchases from suppliers for the month were $12,000.

ii. Issues of materials to WIP were $15,000.
iii. Closing inventory was $22,000.
iv. Issues of indirect materials were $3,000.

A. (i), (iii) and (iv).

B. (ii), (iii) and (iv).
C. (i), (ii) and (iv).
D. All of the above.

29. Which of the following would contribute to the cost of ordering:

A. Warehouse rent.

MAS Educational Centre Page 10

Cost Accounting - Materials
B. Insurance costs.
C. Transport costs.
D. Interest on capital.

30. Which of the following would not contribute to the cost of holding:

A. Warehouse rent.
B. Insurance costs.
C. Transport costs.
D. Interest on capital.

31. A company uses the economic order quantity to establish re-order quantities
for material. Demand is 12,000 units for a 4- month period. The purchase price
is $20 per unit.

The cost of placing one order is $180 and the cost of holding one unit per
annum is 3% of the purchase price.

What is the economic order quantity (rounded to the nearest unit)?

A. 2,683.
B. 3,286.
C. 4,684.
D. 1,897

MAS Educational Centre Page 11

Cost Accounting - Materials

32. Bulk discounts and re-order quantities.

A company uses the Economic Order Quantity to establish re-order quantities.
The following information is available:

EOQ = 750 units

Cost of placing one order: $150
Purchase price: $15/unit
Annual Demand: 2,250units
Cost of holding one unit per annum: $1.20
The company’s supplier has offered a discount of 2% on orders of 1,000 units or
more.
Which of the following statement is true:

A. The company should increase its order level to 1,000 units per order as this is
more cost effective than using the economic order quantity.
B. The company should continue to use the economic order quantity as this is
more cost effective than taking the bulk discount.
C. The annual cost of holding will go down if the company avails of the bulk
discount.
D. The annual cost of ordering will be lower using the Economic Order Quantity
than if they took the bulk discount.

The following information relates to question 13–15

A company has the following information regarding demand and lead times for
material:

Maximum demand 120 units per day

Minimum demand 80 units per day
Lead time 2–4 weeks
Reorder quantity 5,000 units

MAS Educational Centre Page 12

Cost Accounting - Materials
33. What is the re-order level to ensure there are no stockouts?
_____________

34. What is the buffer stock held by the company?

_____________

35. What is the maximum stock held by the company?

______________

36. A company uses the economic order quantity to calculate re-order quantities
for a particular material. Demand for the material is 5,000 units for a 6month
period. The cost of holding one unit per annum is $2.
The cost of placing one order is $80
What is the economic order quantity (to the nearest unit)?

A. 16.
B. 22.
C. 632.
D. 894.

37. A company has calculated the economic order quantity for a particular material
to be 500 units. The annual cost of holding one unit per annum is $1. The cost
of placing one order is $100.
What is the annual demand (rounded to the nearest unit)?
____________

The following information relates to the next 2 questions

A company has the following information regarding stock levels and demand:

Maximum Minimum
Usage per week 4,900 2,100
Lead time 8 days 2 days

MAS Educational Centre Page 13

Cost Accounting - Materials
Re-order quantity = 3,000 units

38. What is the re-order level which will avoid stock outs occurring?
______________

39. What is the maximum stock level?

______________

40. A company has the following inventory information for March:

Material A:
Opening inventory 400 units valued at $18/unit

Date Receipts Issues

03/03 450 units @ $18.50/unit
10/03 300
18/03 200
25/03 150 units @ $19/unit

The value of the closing inventory using FIFO method of valuation would be
$_____________

MAS Educational Centre Page 14

Cost Accounting - Materials

41. On the 1st June, the opening inventory for a company was 150 units valued at
$5/ unit. The following movements in inventory were recorded during the
month:

6th June 75 units issued to production

11th June 50 units purchased for $5.25
15th June 60 units issued to production
Each unit is sold for $7. During June, 120 units were sold.
The gross profit for June using the FIFO method of inventory valuation would
be $_____________ higher than the gross profit if the LIFO method is used.

The following information relates to the next 3 questions

During December, Bective Co recorded the following in relation to inventory of
a particular material

Date Item Units Value/unit

01/12 Opening 300 $8
inventory
03/12 Receipt 200 $7.90
08/12 Issue 250
10/12 Issue 50
15/12 Receipt 400 $7.50
21/12 Issue 300

42. Using the LIFO method of inventory valuation, the value of the closing
inventory would be:

A. $2.400
B. $2,350
C. $2,250
D. $2,295

MAS Educational Centre Page 15

Cost Accounting - Materials

43. Using the FIFO method of inventory valuation the total value of material issued
during the month was:
$_________________

44. Using the weighted average method of inventory valuation, the value of the
issues on 21/12 was (to the nearest $):
$__________________

45. When inventory price are rising, tick which two of the following statements
would be correct in relation to inventory valuation.

FIFO method will produce higher profit than LIFO

LIFO method will produce higher profit than FIFO
LIFO method will result in a lower closing inventory value
FIFO method will result in a lower closing inventory value

46. A company has the following closing inventory valuations depending on which
method the use to value inventory:

Units FIFO Valuation LIFO Valuation

1,000 $7,940 $9,132

Inventory prices during the period were (tick which one applies):

Rising
Stable
Falling

MAS Educational Centre Page 16

Cost Accounting - Materials

47. Strauss Co uses the weighted average method to value inventory and has the
following partially completed table for April:

Date Item Units Value $

01/04 Opening 400 1,600
Inventory
08/04 Receipt 300 1,260
15/04 Issue 200 817
22/04 Receipt 100
29/04 Issue 50 206.50

The cost per unit of the receipt on 22/04 (to 2 decimal places) was
$_______________

MAS Educational Centre Page 17

Cost Accounting - Materials

MAS Educational Centre Page 18