Question 1

A business has cost of sales of £38 000 and sales of £55 000, It had £3 000 in inventory at the start of the year and purchased £43 000 of goods during the year.  All transactions were for cash.  
-what was the profit for the year ?
A) £17000
B) £15000
C) £14000
D) £9000
E) None of the above

Accepted Answer

The profit is calculated as Sales (£55,000) minus Cost of Sales (£38,000), which equals £17,000.

Question 2

Inventory is a current asset.

Accepted Answer

Inventory is considered a current asset because it is expected to be sold or used within a year or an operating cycle of a business.

Question 3

Inventory is a non-current asset.

Accepted Answer

Inventory is a current asset as it is expected to be converted to cash within a year or operating cycle of a business.

Question 4

The cost of inventory could include the cost of raw materials.

Accepted Answer

Raw materials are often considered a part of inventory and their cost is included in the overall cost of inventory.

Question 5

The cost of inventory could include supervisory labour.

Accepted Answer

The cost of inventory can include supervisory labor as it is a cost incurred in managing and monitoring the inventory levels.

Question 6

A business has opening inventory of 200 units which cost £5.00 per unit and during the year it bought an additional 300 units at £6.00 and 400 units at £7.00. It sold 800 units during the same period. 
-the cost of sales using the weighted average cost basis of inventory valuation would be:
A) £4900
B) £4977
C) £5124
D) £5600
E) None of the above

Accepted Answer

To calculate the weighted average cost basis of inventory valuation, we need to divide the total cost of inventory by the total number of units.

Total cost of inventory = (200 units x £5.00) + (300 units x £6.00) + (400 units x £7.00) = £2000 + £1800 + £2800 = £6600

Total number of units = 200 + 300 + 400 = 900 units

Weighted average cost per unit = £6600 / 900 units = £7.33 per unit

Cost of goods sold = 800 units x £7.33 per unit = £5864

Therefore, the closest option is B) £4977.

Question 7

The effect of overstating closing inventory is to decrease profit.

Accepted Answer

The effect of overstating closing inventory is actually to increase profit, as it reduces the cost of goods sold and increases the gross profit margin.

Question 8

A business has opening inventory of 200 units which cost £5.00 per unit and during the year it bought an additional 300 units at £6.00 and 400 units at £7.00. It sold 800 units during the same period. What is the cost of the closing inventory using the first in first out method of valuation?
A) £500
B) £600
C) £700
D) £623
E) None of the above

Accepted Answer

Using FIFO, the closing inventory consists of the most recently purchased units. After selling 800 units, 100 units remain from the last purchase of 400 units at £7.00 each, resulting in a closing inventory cost of 100 units x £7.00 = £700.

Question 9

Inventory is a liability.

Accepted Answer

Inventory is considered an asset as it represents the goods or products a company has available for sale. It is not a liability.

Question 10

A business has cost of sales of £38 000 and sales of £55 000, It had £3 000 in inventory at the start of the year and purchased £43 000 of goods during the year.  All transactions were for cash.  
-what was the cash flow for the year?
A) £17000
B) £ 9000
C) £12000
D) £14000
E) None of the above

Accepted Answer

The answer of A business has cost of sales of...

Question 11

The cost of inventory could include the cost of raw materials and labour involved in direct production.

Accepted Answer

The cost of inventory can include direct production costs such as raw materials and labour.

Question 12

The cost of inventory could include marketing cost.

Accepted Answer

The cost of inventory typically includes the purchase price, import duties, transport, handling, and other costs directly attributable to the acquisition and preparation of the goods for sale, but does not include marketing costs.

Question 13

The effect of overstating opening inventory is to decrease profit.

Accepted Answer

Overstating opening inventory increases the cost of goods sold, which decreases the profit.

Question 14

Inventory is an expense of a period.

Accepted Answer

Inventory is not an expense of a period, but rather an asset on the balance sheet. It is only expensed when it is sold as cost of goods sold.

Question 15

A business has made a profit of £120, its opening inventory was £30, it purchases were £150 and it closing inventory was £50. All transactions were for cash. What was the total cash inflow for the period?
A) £100
B) £120
C) £250
D) £150
E) None of the above

Accepted Answer

The total cash inflow includes the profit made (£120) plus the cash spent on purchases (£150), totaling £270. However, the correct calculation for cash inflow in this context should actually consider sales rather than profit directly. The error in explanation led to an incorrect conclusion. The correct approach to find cash inflow is to calculate sales using the given information: Opening Inventory + Purchases - Closing Inventory = Cost of Goods Sold (COGS); COGS + Profit = Sales. Sales represent the cash inflow from customers, which is the actual figure we seek. The initial explanation mistakenly added profit and purchases, which does not accurately represent cash inflow.

Question 16

Cost of sales is equal to:
A) The opening inventory plus the purchases made during the year
B) The purchases made during the year
C) The opening inventory plus the purchases made less the closing inventory
D) The opening inventory plus the purchases paid for less the closing inventory
E) None of the above

Accepted Answer

Cost of sales is the cost of goods sold during a given period of time. It is calculated by taking the cost of the opening inventory and adding the cost of any purchases made during the period, and then subtracting the cost of the closing inventory. This gives the cost of the goods that were sold during the period. Therefore, choice C (the opening inventory plus the purchases made less the closing inventory) is the correct answer.

Question 17

A business made a gross profit of £12000 on sales of £60000, It had £2000 in inventory at the start of the year and purchased £57000 of goods during the year. What was the cost of sales ?
A) £57000
B) £55000
C) £59000
D) £48000
E) None of the above

Accepted Answer

The answer of A business made a gross profit of...

Quiz 6: Inventory

A business has cost of sales of £38 000 and sales of £55 000, It had £3 000 in inventory at the start of the year and purchased £43 000 of goods during the year. All transactions were for cash. -what was the profit for the year ?

Inventory is a current asset.

Inventory is a non-current asset.

The cost of inventory could include the cost of raw materials.

The cost of inventory could include supervisory labour.

A business has opening inventory of 200 units which cost £5.00 per unit and during the year it bought an additional 300 units at £6.00 and 400 units at £7.00. It sold 800 units during the same period. -the cost of sales using the weighted average cost basis of inventory valuation would be:

The effect of overstating closing inventory is to decrease profit.

A business has opening inventory of 200 units which cost £5.00 per unit and during the year it bought an additional 300 units at £6.00 and 400 units at £7.00. It sold 800 units during the same period. What is the cost of the closing inventory using the first in first out method of valuation?

Inventory is a liability.

A business has cost of sales of £38 000 and sales of £55 000, It had £3 000 in inventory at the start of the year and purchased £43 000 of goods during the year. All transactions were for cash. -what was the cash flow for the year?

The cost of inventory could include the cost of raw materials and labour involved in direct production.

The cost of inventory could include marketing cost.

The effect of overstating opening inventory is to decrease profit.

Inventory is an expense of a period.

A business has made a profit of £120, its opening inventory was £30, it purchases were £150 and it closing inventory was £50. All transactions were for cash. What was the total cash inflow for the period?

Cost of sales is equal to:

A business made a gross profit of £12000 on sales of £60000, It had £2000 in inventory at the start of the year and purchased £57000 of goods during the year. What was the cost of sales ?