Secondary 4 Principles of Accounts Inventory Costing Quiz

Secondary 4 Principles of Accounts Quiz - Inventory Costing

Name: _________________ Class: _________________ Date: _________________

Score: _____ / 40 marks Duration: 45 minutes

Instructions

• Answer all questions in the spaces provided
• Show all workings clearly
• Calculators are permitted
• Round monetary amounts to the nearest dollar unless otherwise stated

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Section A: Multiple Choice (8 marks)

Choose the best answer for each question. Write the letter in the box provided.

1. Which inventory valuation method assumes that the oldest stock is sold first? a) LIFO b) FIFO c) AVCO d) Specific identification

Answer: [ ]

2. The inventory turnover ratio is calculated as: a) Average inventory ÷ Cost of goods sold b) Cost of goods sold ÷ Average inventory c) Sales ÷ Closing inventory d) Opening inventory ÷ Sales

Answer: [ ]

3. Under the AVCO method, when prices are rising, the closing inventory value will be: a) Higher than FIFO b) Lower than FIFO c) The same as FIFO d) Cannot be determined

Answer: [ ]

4. If closing inventory is overstated, the effect on profit is: a) Profit is overstated b) Profit is understated c) No effect on profit d) Depends on the opening inventory

Answer: [ ]

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Section B: Short Answer Questions (16 marks)

5. State the accounting principle used for inventory valuation. (2 marks)

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6. List THREE factors that could cause a company's inventory turnover rate to be lower than the industry average. (3 marks)

a) _________________________________________________

b) _________________________________________________

c) _________________________________________________

7. ABC Trading discovered that their closing inventory as at 31 December 2024 was understated by $5,000. State the effect of this error on:

a) Cost of goods sold for 2024: _________________________ (1 mark)

b) Profit for 2024: _________________________ (1 mark)

c) Opening inventory for 2025: _________________________ (1 mark)

8. Explain why the FIFO method may be preferred during a period of rising prices. Give TWO reasons. (4 marks)

Reason 1: _________________________________________________

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Reason 2: _________________________________________________

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9. Calculate the missing figure: (4 marks)

Opening inventory: $15,000 Purchases:$85,000 Closing inventory: $18,000 Cost of goods sold:$__________

Show your working:

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Section C: Structured Questions (16 marks)

10. DEF Electronics has the following inventory transactions for Product X in March 2025:

Date	Transaction	Units	Unit Cost ($)
1 Mar	Opening inventory	100	50
8 Mar	Purchase	200	55
15 Mar	Sale	150	-
22 Mar	Purchase	100	60
28 Mar	Sale	120	-

Required: a) Calculate the cost of goods sold using the FIFO method. (4 marks)

Show your workings:

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Cost of goods sold (FIFO): $__________

b) Calculate the closing inventory value using the AVCO method. (4 marks)

Show your workings:

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Closing inventory (AVCO): $__________

11. GHI Manufacturing reported the following information for 2024 and 2025:

	2024 ($)	2025 ($)
Cost of goods sold	240,000	280,000
Opening inventory	30,000	35,000
Closing inventory	35,000	45,000

Required: a) Calculate the inventory turnover rate for both years (to 1 decimal place). (4 marks)

2024 calculation:

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Inventory turnover 2024: __________ times

2025 calculation:

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Inventory turnover 2025: __________ times

b) Comment on the change in inventory turnover rate and suggest ONE possible reason for this change. (4 marks)

Comment:

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Possible reason:

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END OF QUIZ

Secondary 4 Principles of Accounts Quiz - Inventory Costing (Answer Key)

Section A: Multiple Choice (8 marks - 1 mark each)

1. b) FIFO FIFO (First In, First Out) assumes the oldest inventory is sold first.

2. b) Cost of goods sold ÷ Average inventory This measures how many times inventory is sold and replaced over a period.

3. b) Lower than FIFO AVCO uses average costs, while FIFO uses older (lower) costs during rising prices, making AVCO closing inventory lower.

4. a) Profit is overstated Overstated closing inventory reduces cost of goods sold, which increases profit.

Section B: Short Answer Questions (16 marks)

5. (2 marks) Answer: Lower of cost and net realisable value Award 1 mark for "lower of cost and NRV" and 1 mark for correct terminology.

6. (3 marks - 1 mark each) Possible answers include: a) Poor inventory management/overstocking b) Seasonal business requiring higher stock levels c) Slow-moving or obsolete inventory d) Economic downturn reducing sales e) New product lines not yet established f) Bulk purchasing strategy Award 1 mark for each valid, distinct factor.

7. (3 marks - 1 mark each) a) Cost of goods sold is overstated by $5,000 b) Profit is **understated** by$5,000
c) Opening inventory is understated by $5,000

8. (4 marks - 2 marks each reason) Reason 1: Matches current costs with current revenues / Better income statement presentation Reason 2: Higher closing inventory value strengthens balance sheet / Better asset valuation Award 1 mark for stating the reason, 1 mark for explanation.

9. (4 marks) Working: Opening inventory + Purchases - Closing inventory = Cost of goods sold $15,000 +$85,000 - $18,000 =$82,000

Answer: $82,000 Award 2 marks for correct formula, 1 mark for correct substitution, 1 mark for correct answer.

Section C: Structured Questions (16 marks)

10a) FIFO Cost of Goods Sold (4 marks)

Working: First sale (150 units):

• 100 units @ $50 =$5,000
• 50 units @ $55 =$2,750 Total: $7,750

Second sale (120 units):

• 120 units @ $55 =$6,600

Cost of goods sold (FIFO): $14,350

Marking: 1 mark for correct FIFO concept, 1 mark for first sale calculation, 1 mark for second sale calculation, 1 mark for correct total.

10b) AVCO Closing Inventory (4 marks)

Working: After 8 Mar purchase: (100×$50 + 200×$55) ÷ 300 = $53.33 per unit After 15 Mar sale: 150 units remain @$53.33 After 22 Mar purchase: (150×$53.33 + 100×$60) ÷ 250 = $56.00 per unit After 28 Mar sale: 130 units remain @$56.00

Closing inventory (AVCO): $7,280

Marking: 1 mark for calculating weighted average after each purchase, 1 mark for tracking quantities correctly, 1 mark for final calculation, 1 mark for correct answer.

11a) Inventory Turnover Calculations (4 marks)

2024: Average inventory = ($30,000 +$35,000) ÷ 2 = $32,500 Inventory turnover =$240,000 ÷ $32,500 = 7.4 times

2025: Average inventory = ($35,000 +$45,000) ÷ 2 = $40,000 Inventory turnover =$280,000 ÷ $40,000 = 7.0 times

Marking: 1 mark for each average inventory calculation, 1 mark for each turnover calculation.

11b) Comment and Reason (4 marks)

Comment: The inventory turnover rate decreased from 7.4 times in 2024 to 7.0 times in 2025, indicating that inventory is moving more slowly / the company is holding inventory for longer periods.

Possible reason: The company may have increased stock levels to meet growing demand / expanded product range / bulk purchasing strategy / seasonal stocking / deteriorating sales performance.

Marking: 2 marks for correct comment on the trend, 2 marks for a reasonable explanation.

Total: 40 marks