SECTION A

MULTIPLE CHOICE QUESTIONS

INSTRUCTION: CIRCLE THE MOST APPROPRIATE ANSWER

1. The economic order quantity is the order size that:

A. Minimizes total inventory cost
B. Minimizes total inventory carrying cost
C. Maximizes the sum of inventory ordering and carrying costs
D. Minimizes inventory ordering cost

2. What is another name for inventory carrying cost?

A. Ordering cost
B. Holding cost
C. Opportunity cost
D. Total inventory cost

3. Which of the following bases is BEST suited to the apportionment of rent?

A. Machine hours
B. Cost of building
C. Volume
D. Floor space

4. The Direct Method of apportioning service centre costs to production centres:

A. Ignores the exchange of a service between service centres
B. Takes into consideration the exchange of services between service centres
C. Assigns overheads to production centres through the use of simultaneous
equations
D. Apportions service centre costs to production centres in a sequential manner.

5. The following information was extracted from the books of Senior Inc.

$
Cost of goods sold 108 000
Ending balance of finished goods inventory 21 000
Cost of goods manufactured 58 000

Calculate the opening balance of finished goods inventory for the period.
A. $71 000
B. $70 000
C. $127 000
D. $77 000

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 6. Period costs are expensed
A. When goods are sold
B. In the period following the one in which they arise
C. In the period in which they are incurred
D. When goods are included in finished goods inventory

7. Which of the following is equations is representative of a fixed cost?

A. Y = a + bx
B. Y = a
C. Y = bx
D. Y = 0

8. NWC charged its customers $100 for every liter used up to a maximum of 500 liters. This
best described
A. Fixed cost
B. Variable cost
C. Step variable cost
D. Semi-fixed cost

9. Which of the following would not be considered as a source document for labour
A. Clock card
B. Bill of lading
C. Punch in card
D. Log book

Use the information below to answer questions 10 to 11

Joan West works as a print marker at “You State it We Print It” Incorporated. Joan is paid $800
for a 40-hour work week. During a four-week period, she worked 140 hours and was idle for 20
hours because of unscheduled power outages and machine breakdown.

10. What is the company’s total wage bill for the four-week period?
A. $2 800
B. $800
C. $3 200
D. $2 400

11. The cost of idle time is:

A. $0
B. $800
C. $1 600
D. $400

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 12. Which of the following is NOT a prime cost in a schedule of cost of goods
manufactured?
A. Direct material
B. Direct labour
C. Direct expenses
D. Office wages

The following information relates to some receipts and issues of machine fittings from a central
store in January 2006.
Unit -1 box of 200 machine fittings
Date (2006) Receipt (boxes) Cost price Issues (boxes)
Jan 1 20 4.00
Jan 4 20 4.10
Jan 9 15
Jan 13 20 4.20
Jan 15 25
Jan 21 20 4.30
Jan 25 10
Jan 28 20 4.40
Jan 30 25

13. What is the value of closing inventory at January 30, using the FIFO method?

A. $101.50
B. $109.50
C. $107.12
D. $108.50

14. In a make versus buy decision which of the following factors is NOT relevant?
A. Opportunity cost of alternative activities
B. Fixed production cost
C. Reliability of supplier
D. Reliability of bought-in product

15. The costs that are unavoidable and remain unchanged no matter what done are classified
as:
A. Opportunity cost
B. Economic cost
C. Sunk cost
D. Business cost

SECTION B

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 1. Forbes Company uses 800 units of a part each year. To gain better control over its
inventions the company is keen to determine the Economic Order Quantity (EOQ) for
this parts.
The company has determined that it cost $40 to place an order for the part from the
supplier and $4 to carry one part in inventory each year.

(a) Calculate the EOQ [3 marks]

(b) Calculate the ordering cost [2 marks]

(c) List TWO elements of carrying cost [2 marks]

2. Shields Limited operation is mainly machine intensive. The budgeted manufacturing

overhead cost is $100 000 and the budgeted labour hours and machine hours were 15 000
and 20 000 respectively.

(a) What is the predetermined overhead rate? [2 marks]

(b) What would be the predetermined overhead rate if the company produces 5000 units
and used the units produced as a basis? [2 marks]

(c) State TWO methods that can be used to allocate service department costs to
production departments. [2 marks]

3. ABC Manufacturing operates a piece rate system of remuneration. The information in

the table below relates to Robert Scott an employee.
Week No. 1 Clock hours: 50
Output Quantity (units) Standard time per unit
A 200 1.7 minutes/unit
B 300 1.5 minutes/unit
C 400 2.2 minutes/unit

Piece work rate $1.50 per minute produced

Required:
(a) Total production piecework minutes
(b) Robert Scott’s gross wage [4 marks]
4. The Blue Loom Company uses a period inventory system. The inventory record for raw
materials purchased by the company for the month of April 2020 showed the following:
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 April 1 Beginning inventory 600 units @$30.00 per unit
April 18 Inventory purchased 900 units @$36.00 per unit
April 25 Inventory purchased 800 units @$40.00 per unit

The Blue Loom Company sold 1 500 units during the month of April 2020.

Compute the value of the closing inventory of raw materials for April 2020 using the
following inventory methods:

(a) First-in-First-out (FIFO) [3 marks]

(b) Average Cost (AVCO) [3 marks]

(c) In a period of falling prices, how would the FIFO method of pricing issues
compare with the LIFO method in respect of profit reported and closing
inventory valuation? [2 marks]

SECTION C

1. Shields Company reports the following costs and expense in December 2020
$

Stock at Jan 1 2020:

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 -Raw material inventory 14 400
-Work in progress 15 700
-Finished goods inventory 24 200
Factory maintenance 7 700
Factory manager’s salary 17 200
Office supplies 20 000
Factory utilities 13 800
Indirect factory wages 6 700
Manufacturing wages 71 000
Indirect material used 14 500
Purchases of raw material 102 200
Marketing distribution cost 20 700
Factory Property taxes 7 500
Miscellaneous plant overhead 18 900
Depreciation on office equipment 8 700
Depreciation on factory assets 11 600
Office salaries 46 700
Sales commission 24 800
Stock at December 31, 2020:
-Raw material inventory 12 300
-Work in progress 11 900
-Finished goods inventory 20 500

(a) Prepare the schedule of good manufactured for the period ending December 31, 2020
showing clearly
i. Cost of raw material used
ii. Prime Cost
iii. Total Factory Overheads
iv. Manufacturing cost of goods completed [12 marks]

(b) Prepare the Cost of Good Schedule for Shields Company [5 marks]

(c) Name THREE cost that could be included in period cost of Jones Company?
[3 marks]
END OF TEST