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O Level Principles of Accounts Inventory Costing Quiz

Free O Level POA Inventory Costing quiz, HY3 AI version, with questions, answers, and O Level-style practice for Singapore students.

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Questions

O-Level Principles of Accounts Quiz - Inventory Costing

Name: ___________________________
Class: ___________________________
Date: ___________________________
Score: _______ / 40

Duration: 50 minutes
Total Marks: 40

Instructions:

Answer all 20 questions.
Show all workings clearly for calculation questions.
Write your answers in the spaces provided.
Use the periodic inventory system unless stated otherwise.

Section A: Basic Concepts and Cost of Sales (Questions 1–5)

1. State the formula for calculating Cost of Sales under the periodic inventory system. [1]

2. The following information relates to Bright Store for the month of January 2024:

Opening inventory: $3,000
Purchases: $12,000
Closing inventory: $4,000

Calculate the cost of sales for January 2024. [2]

3. Explain, with reference to an accounting concept, how inventory should be valued at the end of a financial period. [2]

4. Give TWO reasons why a business should control its inventory levels. [2]

5. At 31 December 2024, Swift Supplies had goods in transit purchased FOB shipping point worth $800. Should this amount be included in closing inventory? Explain briefly. [1]

Section B: FIFO and AVCO Methods (Questions 6–11)

6. Sunlight Traders uses the periodic inventory system. Data for April 2024:

1 Apr: Opening inventory 100 units at $5 each
10 Apr: Purchased 200 units at $6 each
20 Apr: Sold 150 units
25 Apr: Purchased 100 units at $7 each
30 Apr: Sold 100 units

Calculate the value of closing inventory using the FIFO method. [3]

7. Using the same data as Question 6, calculate the value of closing inventory using the AVCO (weighted average) method. [3]

8. Based on your answers to Questions 6 and 7, which method gives a higher closing inventory value? Why? [2]

9. Compute the cost of goods sold for April 2024 using the FIFO method (use data from Q6). [2]

10. A business sold 120 units during May. Opening inventory was 50 units at $10, purchase of 100 units at$ 12. Using AVCO, calculate the average cost per unit and the closing inventory value (assume no other purchases). [3]

11. State ONE advantage of using the FIFO method for inventory costing. [1]

Section C: Inventory Turnover and Analysis (Questions 12–16)

12. Define "inventory turnover ratio". [1]

13. For Moonlight Retail:

2023: Cost of sales $300,000, Average inventory$ 50,000
2024: Cost of sales $360,000, Average inventory$ 60,000

Calculate the inventory turnover ratio for both years. [2]

14. Using the figures in Question 13, calculate the days sales in inventory for 2024 (use 365 days). Show your answer to two decimal places. [2]

15. Comment on the trend in inventory turnover from 2023 to 2024 for Moonlight Retail and recommend ONE action to improve inventory management. [3]

16. The following bar chart shows average inventory for a business over 3 years.

Image pending generation: chart for Q16.

Based on the chart, calculate the percentage increase in average inventory from 2022 to 2024. [2]

Section D: Adjustments and Extended Application (Questions 17–20)

17. At 31 December 2024, Coral Shop had closing inventory of $9,000 but$ 1,000 of goods were damaged and obsolete. Calculate the adjusted closing inventory value per the lower of cost and net realizable value rule. [2]

18. Prepare the Inventory account (T-account) for Green Co for March 2024:

1 Mar: Opening balance 200 units valued at $1,000
15 Mar: Purchases $2,500
28 Mar: Issues to cost of sales $3,000 Show balance c/d and b/d. [3]

19. Compare FIFO and AVCO in terms of their effect on reported profit during a period of rising prices. [3]

20. A business has cost of sales of $240,000 and average inventory of$ 30,000. (a) Calculate inventory turnover ratio. [1] (b) Calculate days sales in inventory. [1] (c) State whether a higher or lower days sales in inventory is generally better for cash flow, and why. [2]

Answers

O-Level Principles of Accounts Quiz - Inventory Costing (Answer Key)

Total Marks: 40
Topic: Inventory Costing
Level: O-Level

Section A: Basic Concepts and Cost of Sales

Q1. [1 mark] Formula:
Cost of Sales = Opening Inventory + Purchases − Closing Inventory
Teaching note: Under periodic system, we do not record each sale's cost; we compute total cost of sales at period end using this formula.
Common mistake: Writing "Sales − Profit" instead of inventory formula.

Q2. [2 marks] Opening inventory: $3,000 Purchases:$ 12,000
Closing inventory: $4,000 Cost of Sales =$ 3,000 + $12,000 −$ 4,000 = $11,000
Mark breakdown: 1 mark for correct formula/substitution, 1 mark for correct answer.

Q3. [2 marks] Inventory is valued at the lower of cost and net realizable value (LCNRV). This applies the prudence concept — assets should not be overstated, and anticipated losses should be recognized early.
Teaching note: Cost = purchase price + bringing to location/condition. NRV = expected selling price − costs to sell. Choose the lower.
Marking: 1 mark for stating LCNRV, 1 mark for linking to prudence/concept.

Q4. [2 marks] Any two of:

To avoid tying up excess cash in stock
To reduce storage/holding costs
To minimise risk of obsolescence/spoilage
To meet customer demand promptly (avoid stockouts)
1 mark each.

Q5. [1 mark] Yes, include $800. Under FOB shipping point, goods belong to buyer once shipped.
Common mistake: Thinking goods in transit are excluded automatically.

Section B: FIFO and AVCO Methods

Q6. [3 marks] FIFO: closing inventory = 150 units (400 total − 250 sold).

From 25 Apr purchase: 100 units × $7 =$ 700
From 10 Apr purchase: 50 units × $6 =$ 300 Total = $1,000
Marking: 1 for units remaining, 2 for correct valuation.

Q7. [3 marks] AVCO: Total cost = (100× $5)+(200×$ 6)+(100× $7) =$ 500+ $1,200+$ 700 = $2,400 Total units = 400 Avg cost =$ 2,400 ÷ 400 = $6.00 Closing inv = 150 ×$ 6 = $900
Marking: 1 for total cost/units, 1 for avg, 1 for closing value.

Q8. [2 marks] FIFO ( $1,000) > AVCO ($ 900). FIFO uses older lower costs for issues, leaving recent higher costs in inventory during rising prices.
1 mark conclusion, 1 mark reason.

Q9. [2 marks] COGS FIFO = Total cost − Closing inv = $2,400 −$ 1,000 = $1,400. (Or: 100×$ 5 + 150× $6 =$ 500+ $900=$ 1,400)
1 mark method, 1 mark answer.

Q10. [3 marks] Units available = 50 + 100 = 150
Total cost = (50× $10)+(100×$ 12) = $500+$ 1,200 = $1,700 Avg cost =$ 1,700 ÷ 150 = $11.333... Sold 120, remaining 30 units Closing inv = 30 ×$ 11.33 = $340 (or$ 340.00)
Marking: 1 avg cost, 1 units remaining, 1 value.

Q11. [1 mark] Advantage: FIFO matches physical flow of goods (oldest sold first); easier to understand; ending inventory close to current cost.

Section C: Inventory Turnover and Analysis

Q12. [1 mark] Inventory turnover ratio = Cost of Sales ÷ Average Inventory. Measures how many times stock is sold and replaced in a period.

Q13. [2 marks] 2023: $300,000 ÷$ 50,000 = 6.0 times
2024: $360,000 ÷$ 60,000 = 6.0 times
1 mark per year.

Q14. [2 marks] Turnover 2024 = 6.0
Days = 365 ÷ 6.0 = 60.83 days
1 mark formula, 1 mark answer to 2 dp.

Q15. [3 marks] Trend: unchanged at 6.0 times (stable).
Action e.g., review slow-moving lines or use JIT to reduce average inventory and free cash.
Marking: 1 trend, 2 for sensible recommendation.

Q16. [2 marks] 2022: $40,000; 2024:$ 70,000
Increase = ( $70,000−$ 40,000) ÷ $40,000 × 100% = 75%
1 mark calculation, 1 answer.

Section D: Adjustments and Extended Application

Q17. [2 marks] $9,000 −$ 1,000 = $8,000 (obsolete goods not realizable at cost).
1 mark adjustment, 1 answer.

Q18. [3 marks] Inventory Account
Dr | Cr
Opening b/d: $1,000 | Issues:$ 3,000
Purchases: $2,500 | Balance c/d:$ 500
Total: $3,500 | Total:$ 3,500
Balance b/d next: $500
Marking: 1 format, 1 entries, 1 balancing.

Q19. [3 marks] During rising prices: FIFO gives lower COGS → higher reported profit; AVCO smooths costs → moderate profit. FIFO inventory higher.
1 mark FIFO effect, 1 AVCO, 1 comparison.

Q20. [4 marks] (a) 240,000 ÷ 30,000 = 8.0 times [1]
(b) 365 ÷ 8 = 45.625 days [1]
(c) Lower days generally better: stock converts to cash faster, less cash tied up [2]
Marking as shown.

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