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AC 56 COST ACCOUNTING AND CONTROL ACTIVITY

CHAPTER 7: ACCOUNTING FOR MATERIALS


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

Required:
a. Record the journal entry needed on July 31,
2020, assuming that the company wants to
report materials inventory on its balance
sheet using the LCNRV method.
b. Record the journal entry needed the next
year on July 31, 2021 assuming the
following:
-NRV = P341,755
-The company uses the LCNRV method
c. At the end of the following year, July 31,
2022, the balance of Materials Inventory is
P337,740; and the NRV is P339,675. Prepare
the necessary journal entry, assuming that
the company still uses the LCNRV method.
4. Olive Corporation buys a material for P20 per
unit. Sixteen thousand parts a year are needed.
Carrying cost is P3.00 per unit and the ordering
cost is P15
a. Compute the EOQ.
b. Prepare a tabular analysis to compute the
total costs assuming the following order
sizes: 100 units, 200 units, 400 units, 1,600
units and 6,400 units. The table should have
the following columns: order size, number
of orders, cost per order, total ordering
costs, average inventory, carrying cost per
unit, total carrying costs, and total costs.

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