AC 56 COST ACCOUNTING AND CONTROL ACTIVITY

CHAPTER 7: ACCOUNTING FOR MATERIALS

I. MULTIPLE CHOICE – THEORY 8. How is loss on inventory write-down
1. In a well-controlled materials system, shown on the statement of
the Purchasing Agent performs the comprehensive income?
following activities, except the: a. As a deduction from the cost of
a. Placing of purchase orders with goods sold
suppliers b. As an addition to the cost of goods
b. Receiving of purchase requisitions sold
c. Approving and checking of invoices c. As a deduction from the sales
d. Preparation of purchase order revenue
2. The purchase requisition is a d. As an addition to sales revenue
document used to: 9. After recording the materials
a. Initiate the return of merchandise requisition in the materials requisition
to the vendor journal, the cost clerk post the data
b. Inform the purchasing agent of a from the requisitions to the material
need for materials section of the:
c. Initiate payment for materials a. Job cost sheet
ordered b. Departmental overhead analysis
d. Inform the Purchasing Department sheet
of a receipt of materials c. Materials ledger card
3. The material requisition: d. Bin tag
a. Authorizes the storeroom to deliver 10.What is the purpose of using a
types and quantities of materials to materials requisition journal?
a given department a. To avoid writing the many long and
b. Is the list of materials requirements repetitious entries involved in
for each step in the production issuing and using materials
cycle b. To avoid error in journalizing the
c. Informs the purchasing agent of requisitions
the quantity and type of materials c. To avoid mathematical errors
needed d. To avoid losses due to thief
d. Contracts for quantities to be
delivered II. MULTIPLE CHOICE –
4. The purchase order: COMPUTATIONAL
a. Is the list of materials requirements 1. A company orders 10,000 units (a one-
for each step in the production year supply) of material X at one time.
cycle Material X costs P1 per unit, and order
b. Contracts for quantities to be costs amount P500 each time an order
delivered is placed. The costs to carry Material X
c. Informs the purchasing agent of in inventory amount to 20% of the
the quantity and kind of materials materials costs.
needed For an entire year, the inventory
d. Authorizes the storeroom to deliver carrying costs and order costs are:
materials to a given department a. P1,500
5. The factor that need not be considered b. P2,000
when calculating an inventory c. P500
economic order quantity (EOQ): d. P1,000
a. Safety stock level 2. There are 1,000 trolls in stock, and
b. Annual stock level 1,500 are due in from orders that were
c. Annual sales of a product previously placed. The company sells
d. Order-placing costs Trolls at the rate of 100 per day and
6. The costing method that considers finds that it takes an average of 20
materials on hand to be from the last days for an order to be received.
ones purchased is: Because usage and lead times are
a. LIFO known with certainty and because the
b. FIFO company has determined that an
c. Moving Average order must be placed now, the desired
d. Specific identification safety stock quantity must be equal
7. Under what costing method are the to:
materials on hand considered to be a. 500 units
from the first ones purchased? b. 1,000 units
a. LIFO c. 2,500 units
b. FIFO d. 100 units
c. Moving Average 3. Ian Company has a plant that
d. Specific identification manufactures transistor radios. One
component is an XT transistor.
 AC 56 COST ACCOUNTING AND CONTROL ACTIVITY
CHAPTER 7: ACCOUNTING FOR MATERIALS
Expected demand is for 5,200 of these Factory Overhead (includes an
transistors in March 2018. Ian allowance of P1 for spoiled P18.0
estimates the ordering cost per work) 0
purchase order to be P250. The P56.0
carrying cost for one unit of XT in 0
stock is P5. Final inspection of Job 301 discloses
What is the EOQ for the XT transistor? 200 spoiled T-shirts which were sold to
a. 721 a jobber for P6,000.
b. 521 Assume that spoilage loss is charged
c. 520 to all production during August. What
d. 720 would be the unit cost of the good
4. Raziel Manufacturing Company uses units produced on Job 301?
1,000 units of Chip annually in its a. P53.00
production. Order costs consist of P10 b. P55.00
for placing a long-distance call to c. P56.00
make the order and P40 for delivering d. 58.00
the order by truck to the company 9. Assume instead, that the spoilage loss
warehouse. Each Chip costs P100 and is attributable to exacting specification
the carrying costs are estimated at of Job 301 and is charged to this
16.625% of the inventory cost. specific job. What would be the unit
What is the EOQ for Chip? cost of the good coats produced on Job
a. 80 301?
b. 90 a. P55.00
c. 100 b. P57.50
d. 120 c. P58.60
5. Using the data in No. 4, what is the d. P61.60
Total order cost? 10.On March 10, 2020 Belo
a. P625 Manufacturing Company returned
b. P550 materials costing P3,500 to its
c. P525 supplier, Etude Supplies, Inc.
d. P650 What is the journal entry to record the
6. Using the data in No. 4, what is the materials returned?
carrying cost for the year?
a. P625 a Vouchers 350
b. P650 . payable 0
c. P550 Materials 3500
d. P525 b Work in process 350
7. Marsh Company has 150 units of . 0
product on hand at January 1 costing Materials 3500
P21.00 each. Purchases of product A c Vouchers 350
during the month of January were as . payable 0
follows: Work in 3500
process
Date Units Unit Cost d Work in process 350
January 10 200 P22.00 . 0
18 250 P23.00 Materials 3500
28 100 P24.00
Physical count on January 31 shows III. PROBLEMS
250 units of product A on hand. 1. The following are the transactions of
The cost of the inventory on January Lion Company for the month of
31 under the FIFO method is October 2020:
a. P5,850
b. P5,550 Oct 4: Purchase Requisition 127 for 4,800
c. P5,350 units of Material X-54 is prepared by the
d. P5,250 storeroom clerk. The material is to be
8. Harper Company’s Job 301 for the ordered from the Mack Corporation for
manufacture of 2,200 T-shirts was P21.50 per unit. Terms 1/10, n/30.
completed during August 2014 at the
following unit costs: Oct 5: Purchase Order 048 is prepared for
materials requisition on Requisition 127.
P20.0
Direct Materials 0 Oct 21:
P18.0 Materials ordered from the Mack Corporation
Direct Labor 0 on Purchase Order 048 are received. Of the
4,800 units, all are rejected for imperfections
 AC 56 COST ACCOUNTING AND CONTROL ACTIVITY
CHAPTER 7: ACCOUNTING FOR MATERIALS
and returned at once. Receiving Report 011 Materials Inventory at Cost
is prepared. The purchase invoice is included P365,900
in the carton. Materials Inventory at NRV
P379,100
A debit memorandum to the Mack
Corporation for materials returned is Required:
prepared. a. Record the journal entry needed on
July 31, 2020, assuming that the
Materials received today from the Mack
company wants to report materials
Corporation are transferred to the stockroom
inventory on its balance sheet
and entered in the materials ledger
using the LCNRV method.
Oct 24: Disbursement Voucher 014 to the b. Record the journal entry needed
Mack Corporation is prepared for the amount the next year on July 31, 2021
owed on the firm’s invoice. assuming the following:
-NRV = P341,755
Oct 25: A check to the Mack Corporation for -The company uses the LCNRV
the amount due, less discount, is prepared method
and mailed. c. At the end of the following year,
July 31, 2022, the balance of
Required: Record in general journal form the Materials Inventory is P337,740;
transactions needing entries. and the NRV is P339,675. Prepare
the necessary journal entry,
2. Corona Manufacturing Company which assuming that the company still
uses the periodic system showed the uses the LCNRV method.
following transactions during the 4. Olive Corporation buys a material for
month of May. P20 per unit. Sixteen thousand parts a
year are needed. Carrying cost is
Date Unit
Unit P3.00 per unit and the ordering cost is
Purchas Unit Cost
Issued P15
ed
a. Compute the EOQ.
5/1
10 15 - b. Prepare a tabular analysis to
(BI)
compute the total costs assuming
5/5 20 20 -
the following order sizes: 100 units,
5/15 - - 15 200 units, 400 units, 1,600 units
5/19 - - 10 and 6,400 units. The table should
5/24 15 18 - have the following columns: order
5/30 - - 15 size, number of orders, cost per
Materials issued on 5/15 came from order, total ordering costs, average
the 5/5 purchase, materials issued on inventory, carrying cost per unit,
5/19 came from beginning inventory, total carrying costs, and total
and those issued on 5/30 came from costs.
the 5/5 and 5/24 purchases?
a. What is the cost of ending
inventory under the specific
identification method?
b. What is the cost of inventory under
the weighted average costing
method?
c. What is the cost of the units issued
under the FIFO costing method?
d. Assuming that the same data
except that Corona Manufacturing
Company now uses a perpetual
inventory system. What is the cost
of the ending inventory under the
moving average method?
e. Using the same assumption in
letter d, what is the cost of ending
inventory under the LIFO costing
method?
3. The following data relates to the
materials inventory of Maria
Manufacturing, Inc. on July 31, 2020: