ACCOUNTING FOR MATERIALS - MULTIPLE CHOICE
1.An effective cost control system should include:
An established plan of objectives and goals to be achieved.
Regular reports showing the difference between goals and actual performance.
Specific assignment of duties and responsibilities.
All of these are correct.
2.The personnel involved in the physical control of materials includes all of the following except
the:
Production department supervisor.
3.The form prepared by the purchasing agent and sent to the vendor to obtain materials is known
as a:
4.The form that serves as authorization to withdraw materials from the storeroom is known as the:
Returned materials report.
5.The form used to notify the purchasing agent that additional materials are needed is known as
a:
6.To effectively control materials, a business must maintain:
None of these are correct.
7.If the amount of materials on hand at the end of the period is less than the control account
balance, the control account balance should be decreased by the following entry:
Debit - Work in Process
Credit - Materials
Debit - Materials
Credit - Factory Overhead
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CHAPTER 2—ACCOUNTING FOR MATERIALS MULTIPLE CHOICE 1. An effective cost control system should include: a. An established plan of objectives and goals to be achieved. b. Regular reports showing the difference between goals and actual performance. c. Specific assignment of duties and responsibilities. d. All of these are correct. ANS: D An effective cost control system should include an established plan of goals and objectives, reports comparing budgeted goals to actual performance, and assignment of specific duties and responsibilities to operating personnel. PTS: 1 DIF: Easy NAT: IMA 1C - Internal Controls
REF: P. OBJ: Introduction TOP: AACSB - Analytic
2. The personnel involved in the physical control of materials includes all of the following except the: a. Purchasing agent. b. Receiving clerk. c. Cost accountant. d. Production department supervisor. ANS: C The cost accountant has the responsibility for the accounting records pertaining to inventory valuation but not for the physical materials. PTS: 1 DIF: Moderate NAT: IMA 1C - Internal Controls
REF: P. OBJ: 2 TOP: AACSB - Reflective
3. The form prepared by the purchasing agent and sent to the vendor to obtain materials is known as a: a. Materials requisition. b. Purchase requisition. c. Purchase order. d. Vendor's invoice. ANS: C The purchase order is prepared by the purchasing agent and sent to the vendor to order materials. PTS: 1 DIF: Easy NAT: IMA 2B - Cost Management
REF: P. OBJ: 2 TOP: AACSB - Analytic
4. The form that serves as authorization to withdraw materials from the storeroom is known as the: a. Stores requisition. b. Purchase order. c. Purchase requisition. d. Returned materials report. ANS: A The stores requisition is prepared by the production department supervisor or an assistant and is presented to the storeroom keeper as authorization for the withdrawal of materials.
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PTS: 1 DIF: Easy NAT: IMA 1C - Internal Controls
REF: P. OBJ: 2 TOP: AACSB - Analytic
5. The form used to notify the purchasing agent that additional materials are needed is known as a: a. Purchase order. b. Vendor's invoice. c. Receiving report. d. Purchase requisition. ANS: D The storeroom keeper prepares a purchase requisition to notify the purchasing agent that additional materials are needed. PTS: 1 DIF: Easy NAT: IMA 2B - Cost Management
REF: P. OBJ: 2 TOP: AACSB - Analytic
6. To effectively control materials, a business must maintain: a. Limited access. b. Combination of duties. c. Safety stock. d. None of these are correct. ANS: A To control materials a business must maintain limited access, segregation of duties, and accuracy in recording. PTS: 1 DIF: Moderate NAT: IMA 1C - Internal Controls
REF: P. OBJ: 1 TOP: AACSB - Reflective
7. If the amount of materials on hand at the end of the period is less than the control account balance, the control account balance should be decreased by the following entry: a. Debit - Work in Process Credit - Materials b. Debit - Materials Credit - Factory Overhead c. Debit - Materials Credit - Work in Process d. Debit - Factory Overhead Credit - Materials ANS: D If the amount of materials on hand per the physical count is less than the control account balance, the balance should be decreased by a debit to Factory Overhead and a credit to Materials. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
REF: P. OBJ: 3 TOP: AACSB - Analytic
8. The following data refer to various annual costs relating to the inventory of a single-product company that requires 10,000 units per year:
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Cost per unit Order cost Transportation-in on purchases Storage Insurance
$ .05 .18 .16 .10
Total per year Interest that could have been earned on alternate investment of funds
$800
What is the annual carrying cost per unit? a. $ .21 b. $ .29 c. $ .34 d. $ .44 ANS: C The carrying costs will consist of the per unit costs for storage, insurance, and interest on the inventory investment. Carrying costs: Storage Insurance Interest Units required
$.16 .10
=
$800 10,000
.08 $.34
Carrying costs PTS: 1 DIF: Hard NAT: IMA 3A - Strategic Planning
REF: P. OBJ: 1 TOP: AACSB - Analytic
9. Expected annual usage of a particular raw material is 180,000 units, and standard order size is 12,000 units. The invoice cost of each unit is $300, and the cost to place one purchase order is $80. The average inventory is: a. 10,000 units. b. 7,500 units. c. 15,000 units. d. 6,000 units. ANS: D Average inventory
= =
12,000 2 6,000 units
PTS: 1 DIF: Moderate NAT: IMA 3A - Strategic Planning
(standard-size order)
REF: P. OBJ: 1 TOP: AACSB - Analytic
10. Expected annual usage of a particular raw material is 1,200,000 units, and standard order size is 10,000 units. The invoice cost of each unit is $145, and the cost to place one purchase order is $105. The estimated annual order cost is: a. $12,000. b. $17,400.
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c. $12,600. d. $800,000. ANS: C Annual order cost =
1,200,000 units 10,000 units
= =
120 orders $105 $12,600
=
Number of orders Per order cost $105
PTS: 1 DIF: Moderate NAT: IMA 3A - Strategic Planning
REF: P. OBJ: 1 TOP: AACSB - Analytic
11. Assuming that demand is determinable, what is the objective of the economic order quantity (EOQ) model for inventory? a. To minimize order costs or carrying costs, whichever are higher b. To minimize order costs or carrying costs and maximize the rate of inventory turnover c. To minimize the total order costs and carrying costs over a period of time d. To order sufficient quantity to economically meet the next period's demand ANS: C If the demand for the product can be determined because it is predictable, the essence of any EOQ model for inventory is to minimize the total order costs and also minimize the total carrying costs. PTS: 1 DIF: Easy NAT: IMA 3A - Strategic Planning
REF: P. OBJ: 1 TOP: AACSB - Analytic
12. Gedye Company has correctly computed its economic order quantity at 500 units; however, management feels it would rather order in quantities of 600 units. How should Gedye's total annual purchase order cost and total annual carrying cost for an order quantity of 600 units compare to the respective amounts for an order quantity of 500 units? a. Higher purchase order cost and lower carrying costs b. Lower purchase order cost and higher carrying cost c. Higher purchase order cost and higher carrying cost d. Lower purchase order cost and lower carrying cost ANS: B If orders were placed for 600 units instead of EOQ of 500 units, fewer purchase orders would have to be placed to acquire the total units required for production, thereby reducing the purchase order cost. However, due to the larger number of units ordered each time, the number of units stored would be greater and a higher carrying cost would result. PTS: 1 DIF: Hard NAT: IMA 3A - Strategic Planning
REF: P. OBJ: 1 TOP: AACSB - Reflective
13. Rowe Co.'s Job 401 for the manufacture of 2,200 coats was completed during August at the unit costs presented below. Final inspection of Job 401 disclosed 200 spoiled coats that were sold to a jobber for $6,000. Direct materials
$24
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Direct labor Factory overhead
18 14 $56
Assume that spoilage loss is attributable to the exacting specifications of Job 401 and is charged to this specific job. What would be the unit cost of the good coats produced on Job 401? a. $56.00 b. $58.60 c. $53.00 d. $48.18 ANS: B When the spoilage loss is charged to the specific job on which the spoilage occurred, the cost of producing the good units includes the cost of producing all units less the amount received for the spoilage: 2,200 ($56) - $6,000 2,000
= $58.60
PTS: 1 DIF: Hard NAT: IMA 2B - Cost Management
REF: P. OBJ: 5 TOP: AACSB - Analytic
14. Rowe Co.'s Job 401 for the manufacture of 2,200 coats was completed during August at the unit costs presented below. Final inspection of Job 401 disclosed 200 spoiled coats that were sold to a jobber for $6,000. Direct materials Direct labor Factory overhead
$24 18 14 $56
Assume that the spoilage loss is attributable to the exacting specifications of Job 401 and is charged to this specific job. What would be the journal entry to record the spoilage? a. Debit - Factory Overhead
6,000
b. Debit - Spoiled Goods Inventory
6,000
c. Debit - Spoiled Goods Inventory
6,000 5,200
Credit - Work in Process
6,000
Credit - Work in Process
Debit - Factory Overhead Credit - Work in Process
d. Debit - Spoiled Goods Inventory Credit - Factory Overhead
6,000
11,200
6,000 6,000
ANS: B When the spoilage loss is charged to the specific job on which the spoilage occurred, the market value of the spoilage is charged to Spoiled Goods Inventory and the cost of the job in work in process is reduced by the same amount. PTS: 1
DIF: Moderate
REF: P.
OBJ: 5
Full file at //testbank360.eu/test-bank-principles-of-cost-accounting-14th-edition-vanderbeck
NAT: IMA 2B - Cost Management
TOP: AACSB - Analytic
15. Rowe Co.'s Job 401 for the manufacture of 2,200 coats was completed during August at the unit costs presented below. Final inspection of Job 401 disclosed 200 spoiled coats that were sold to a jobber for $6,000. Direct materials Direct labor Factory overhead
$24 18 14 $56
Assume that the spoilage loss is charged to all production during August. What would be the journal entry to record the spoilage? a. Debit - Factory Overhead
11,200
Credit - Work in Process
b. Debit - Spoiled Goods Inventory
6,000
c. Debit - Spoiled Goods Inventory
6,000 5,200
Credit - Work in Process
Debit - Factory Overhead Credit - Work in Process
11,200 6,000
11,200
d. Debit - Spoiled Goods Inventory Credit - Factory Overhead
11,200
11,200
ANS: C When the spoilage loss is charged to all of production, the market value of the spoiled goods is charged to Spoiled Goods Inventory, but the cost of the job in work in process is reduced by the entire cost of the spoiled items. The difference is a loss, which is charged to Factory Overhead. Cost of spoiled items (200 x $56) Market value of spoiled units Amount charged to Factory Overhead PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
$11,200 6,000 $ 5,200
REF: P. OBJ: 5 TOP: AACSB - Analytic
16. During March, Hart Company incurred the following costs on Job 122 for the manufacture of 200 motors: Original cost accumulation: Direct materials Direct labor Factory overhead Direct costs of reworking 10 units: Direct materials Direct labor Factory overhead
$2,600 900 1,350 $4,850 $
100
180 270 $ 550
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The rework costs were attributable to the exacting specifications of Job 122, and the full rework costs were charged to this specific job. What is the cost per finished unit of Job 122? a. $25.00 b. $23.50 c. $27.00 d. $24.00 ANS: C Original cost Rework materials Rework labor Rework overhead Total cost Unit cost ($5,400/200) PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
$4,850 100 180 270 $5,400 $27
REF: P. OBJ: 5 TOP: AACSB - Analytic
17. During March, Hart Company incurred the following costs on Job 122 for the manufacture of 200 motors: Original cost accumulation: Direct materials Direct labor Factory overhead
$2,600 900 1,350 $4,850
Direct costs of reworking 10 units: Direct materials Direct labor Factory overhead
$
100
180 270 $ 550
Assume the rework costs are to be spread over all jobs that go through the production cycle. What is the journal entry needed to record the rework costs? a. Debit - Work in Process
550
b. Debit - Materials
100 180 270
Credit - Materials Credit - Payroll Credit - Factory Overhead
Debit - Payroll Debit - Factory Overhead Credit - Work in Process
550
c. Debit - Factory Overhead
550
d. Debit - Spoiled Goods Inventory
550
Credit - Materials Credit - Payroll Credit - Factory Overhead Credit - Work in Process
ANS: C
100 180 270
100 180 270 550
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When the costs of correcting defective work is to be spread over all jobs, the material, labor and factory overhead costs are charged to Factory Overhead. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
REF: P. OBJ: 5 TOP: AACSB - Analytic
18. The Bisset Corporation uses Raw Material A in a manufacturing process. Information as to balances on hand, purchases, and requisitions of Raw Material A is given in the following table. Raw Material A Transacti Date Jan. 1 Jan. 24 Feb. 8 Mar. 16 Jun. 11 Aug. 18 Sep. 6 Oct. 15 Dec. 29
on
Number of Units
Beginning balance Purchased Issued Issued Purchased Issued Issued Purchased Issued
Unit Price
100 300 80 140 150 130 110 150 140
$1.40 $1.55 $1.62
Balance of Units
100 400 320 180 330 200 90 240 100
$1.70
If a perpetual inventory record of Raw Material A is maintained on a FIFO basis, the March 16 issue will consist of: a. 20 units @ $1.40 and 120 units @ $1.55. b. 100 units @ $1.40 and 40 units @ $1.55. c. 140 units @ $1.55. d. 100 units @ $1.55 and 40 units @ $1.40. ANS: A On a FIFO basis, 20 of the units issued on March 16 would have been assigned a cost of $1.40 per unit and the remaining 120 units issued on that date would have been assigned a cost of $1.55 per unit as follows: Number of Units Beginning Balance Jan. 24 Purchase
100 300
PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
Units issued on February 8
Unit Price $1.40 $1.55
Units issued on March 16
80
20 120
REF: P. OBJ: 3 TOP: AACSB - Analytic
19. The Bisset Corporation uses Raw Material A in a manufacturing process. Information as to balances on hand, purchases, and requisitions of Raw Material A is given in the following table. Raw Material A Transacti
Number of
Unit Price
Balance of
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Date Jan. 1 Jan. 24 Feb. 8 Mar. 16 Jun. 11 Aug. 18 Sep. 6 Oct. 15 Dec. 29
on
Units
Beginning balance Purchased Issued Issued Purchased Issued Issued Purchased Issued
Units
100 300 80 140 150 130 110 150 140
$1.40 $1.55 $1.62
100 400 320 180 330 200 90 240 100
$1.70
If a perpetual inventory record of Raw Material A is maintained on a LIFO basis, the March 16 issue will consist of: a. 20 units @ $1.40 and 120 units @ $1.55. b. 100 units @ $1.40 and 40 units @ $1.55. c. 140 units @ $1.55. d. 100 units @ $1.55 and 40 units @ $1.40. ANS: C On a LIFO basis, the 140 units issued on February 8 would have been assigned a cost of $1.55 per unit as follows: Number of Units Beginning Balance Jan. 24 Purchase
100 300
PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
Units issued on February 8
Unit Price $1.40 $1.55
Units issued on March 16
80
140
REF: P. OBJ: 3 TOP: AACSB - Analytic
20. The Bisset Corporation uses Raw Material A in a manufacturing process. Information as to balances on hand, purchases, and requisitions of Raw Material A is given in the following table. Raw Material A Transacti Date Jan. 1 Jan. 24 Feb. 8 Mar. 16 Jun. 11 Aug. 18 Sep. 6 Oct. 15 Dec. 29
on Beginning balance Purchased Issued Issued Purchased Issued Issued Purchased Issued
Number of Units 100 300 80 140 150 130 110 150 140
Unit Price $1.40 $1.55 $1.62
$1.70
Balance of Units
100 400 320 180 330 200 90 240 100
If a perpetual inventory record of Raw Material A is maintained on a moving average basis, the 140 units issued on March 16 will have a unit cost of:
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a. b. c. d.
$1.5125. $1.475. $1.55. $1.4375.
ANS: A On a moving average basis, the 140 units issued on March 16 would have a unit cost of $1.5125 as follows: Number of Units Beginning Balance Jan. 24 Purchase
Unit Price
100 300 400
Total Cost
$1.40 $1.55
$140.00 465.00 $605.00
Average cost for both the February 8 and March 16 issue would be $1.5125 ($605 / 400 units). PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
REF: P. OBJ: 3 TOP: AACSB - Analytic
21. The Bisset Corporation uses Raw Material A in a manufacturing process. Information as to balances on hand, purchases, and requisitions of Raw Material A is given in the following table. Raw Material A Transacti Date Jan. 1 Jan. 24 Feb. 8 Mar. 16 Jun. 11 Aug. 18 Sep. 6 Oct. 15 Dec. 29
on Beginning balance Purchased Issued Issued Purchased Issued Issued Purchased Issued
Number of Units
Unit Price
100 300 80 140 150 130 110 150 140
$1.40 $1.55 $1.62
Balance of Units
$1.70
100 400 320 180 330 200 90 240 100
If a perpetual inventory record of Raw Material A is maintained on a FIFO basis, the September 6 issue will consist of: a. 10 units @ $1.40, 80 units @ $1.55 and 20 units @ $1.62. b. 50 units @ $1.40 and 60 units @ $1.55. c. 110 units @ $1.55. d. 50 units @ $1.55 and 60 units @ $1.62. ANS: D On a FIFO basis, 50 of the units issued on September 6 would have been assigned a cost of $1.55 per unit and the remaining 60 units issued on that date would have been assigned a cost of $1.62 per unit as follows: Number of
Units
Units
Units
Units
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Units Beginning Balance Jan. 24 Purchase Jun. 11 Purchase
Unit Price
100 300 150
$1.40 $1.55 $1.62
PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
issued on Feb. 8 80
issued on issued on issued Mar. 16 Aug. 18 on Sep.6 20 120 130 50 60
REF: P. OBJ: 3 TOP: AACSB - Analytic
22. The Bisset Corporation uses Raw Material A in a manufacturing process. Information as to balances on hand, purchases, and requisitions of Raw Material A is given in the following table. Raw Material A Transacti Date Jan. 1 Jan. 24 Feb. 8 Mar. 16 Jun. 11 Aug. 18 Sep. 6 Oct. 15 Dec. 29
on
Number of Units
Beginning balance Purchased Issued Issued Purchased Issued Issued Purchased Issued
Unit Price
100 300 80 140 150 130 110 150 140
$1.40 $1.55 $1.62
Balance of Units
$1.70
100 400 320 180 330 200 90 240 100
If a perpetual inventory record of Raw Material A is maintained on a LIFO basis, the September 6 issue will consist of: a. 80 units @ $1.55, 20 units @ $1.62 and 10 units @ $1.40. b. 110 units @ $1.55. c. 50 units @1.55 and 60 units @ 1.62. d. 20 units @ $1.62 and 90 units @ $1.55. ANS: A On a LIFO basis, 20 of the units issued on September 6 would have been assigned a cost of $1.62 per unit, 80 of the units issued would have been assigned a cost of $1.55 per unit and the remaining 10 units issued on that date would have been assigned a cost of $1.40 per unit.
Beginning Balance Jan. 24 Purchase Jun. 11 Purchase
Number of Units
Unit Price
100 300 150
$1.40 $1.55 $1.62
PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
Units issued on Feb. 8 80
Units issued on Mar. 16 140
Units issued on Aug. 18
Units issued on Sep.6 10 80 130 20
REF: P. OBJ: 3 TOP: AACSB - Analytic
23. The Bisset Corporation uses Raw Material A in a manufacturing process. Information as to balances on hand, purchases, and requisitions of Raw Material A is given in the following table.
Full file at //testbank360.eu/test-bank-principles-of-cost-accounting-14th-edition-vanderbeck
Raw Material A Transacti Date Jan. 1 Jan. 24 Feb. 8 Mar. 16 Jun. 11 Aug. 18 Sep. 6 Oct. 15 Dec. 29
Number of Units
on Beginning balance Purchased Issued Issued Purchased Issued Issued Purchased Issued
Unit Price
100 300 80 140 150 130 110 150 140
Balance of Units
$1.40 $1.55 $1.62
100 400 320 180 330 200 90 240 100
$1.70
If a perpetual inventory record of Raw Material A is maintained on a FIFO basis, 200 units on hand on August 18 will consist of: a. 100 units @ $1.40, 80 units @ $1.55 and 20 units @ $1.62. b. 100 units @ $1.55 and 100 units @ $1.62. c. 150 units @ $1.62 and 50 units @ $1.55. d. 200 units @ $1.55. ANS: C On a FIFO basis, 50 of the units on hand at August 18 would have been assigned a cost of $1.55 per unit and the remaining 150 units on hand at that date would have been assigned a cost of $1.62 per unit as follows: Number of Units Beginning Balance Jan. 24 Purchase Jun. 11 Purchase
Units issued on Feb. 8
Unit Price
100 300 150
PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
$1.40 $1.55 $1.62
Units issued on Mar. 16
Units issued on Aug. 18
20 120
130
80
Units in Inventory on Aug.18 -50 150
REF: P. OBJ: 3 TOP: AACSB - Analytic
24. The Bisset Corporation uses Raw Material A in a manufacturing process. Information as to balances on hand, purchases, and requisitions of Raw Material A is given in the following table. Raw Material A Transacti Date Jan. 1 Jan. 24 Feb. 8 Mar. 16 Jun. 11
on Beginning balance Purchased Issued Issued Purchased
Number of Units 100 300 80 140 150
Unit Price $1.40 $1.55 $1.62
Balance of Units
100 400 320 180 330
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Aug. 18 Sep. 6 Oct. 15 Dec. 29
Issued Issued Purchased Issued
130 110 150 140
200 90 240 100
$1.70
If a perpetual inventory record of Raw Material A is maintained on a LIFO basis, the 200 units in inventory at August 18 will consist of: a. 50 units @ $1.62 and 150 units @ $1.55. b. 100 units @ $1.40 and 100 units @ $1.55. c. 20 units @ $1.62, 80 units @ $1.55 and 100 units @ $1.40. d. 100 units @ $1.40, 60 units @ $1.55 and 40 units @ $1.62. ANS: C On a LIFO basis, 20 of the units in inventory at August 18 would have been assigned cost per unit of $1.62, 80 of the units on hand would have been assigned a cost per unit of $1.55 and the remaining 100 units in inventory on that date would have been assigned a unit cost of $1.40 as follows: Number of Units
Unit Price
100 300 150
$1.40 $1.55 $1.62
Beginning Balance Jan. 24 Purchase Jun. 11 Purchase
PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
Units issued on Feb. 8
Units issued on Mar. 16
80
Units issued on Aug. 18
Units in Inventory Aug. 18
130
100 80 20
140
REF: P. OBJ: 3 TOP: AACSB - Analytic
25. The Bisset Corporation uses Raw Material A in a manufacturing process. Information as to balances on hand, purchases, and requisitions of Raw Material A is given in the following table. Raw Material A Transacti Date Jan. 1 Jan. 24 Feb. 8 Mar. 16 Jun. 11 Aug. 18 Sep. 6 Oct. 15 Dec. 29
on Beginning balance Purchased Issued Issued Purchased Issued Issued Purchased Issued
Number of Units 100 300 80 140 150 130 110 150 140
Unit Price $1.40 $1.55 $1.62
$1.70
Balance of Units
100 400 320 180 330 200 90 240 100
If a perpetual inventory record of Raw Material A is maintained on a moving average basis, the 330 items in inventory on June 11 will have a unit cost of: a. $1.51. b. $1.5233. c. $1.4856. d. $1.5125.
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ANS: C On a moving average basis, the 330 units in inventory on June 11 would be assigned a cost per unit of $1.4856 as follows: Number of Units Beginning Balance Jan. 24 Purchase Feb. 8 Issue Mar. 16 Issue Jun. 11 Purchase
100 300 400 80 140 180 150 330
Unit Price $1.40 $1.55 $1.5125 $1.5125 $1.62
Total Cost $140.00 465.00 $605.00 605.00/400 = 1.5125 121.00 211.75 247.25 243.00 $490.25
Average cost per unit for the June 11 inventory would be $1.4856 ($490.25 / 330 units). PTS: 1 DIF: Hard NAT: IMA 2B - Cost Management
REF: P. OBJ: 3 TOP: AACSB - Analytic
26. The LIFO inventory cost flow method may be applied to which of the following inventory systems? Periodic a. b. c. d.
No No Yes Yes
Perpetual No Yes Yes No
ANS: C The LIFO method is appropriate for both periodic and perpetual inventory systems. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
REF: P. OBJ: 3 TOP: AACSB - Reflective
27. In a period of rising prices, the use of which of the following cost flow methods would result in the lowest cost of goods sold? a. FIFO b. LIFO c. Weighted average cost d. Moving average cost ANS: A Under the FIFO method, the earliest purchases, which were least expensive, would be considered to be the goods sold. PTS: 1 DIF: Hard NAT: IMA 2B - Cost Management
REF: P. OBJ: 3 TOP: AACSB - Reflective
28. Just-in-time production techniques: a. Utilize inventory buffers between work centers. b. Were first utilized by U.S. manufacturers and later exported to Japan.
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c. Produce goods for inventory with the hope that demand for these goods will then be created. d. Require a high degree of cooperation and coordination between supplier and manufacturer. ANS: D For a just-in-time inventory system to be effective, suppliers must be in close proximity to customers to enable the delivery of raw materials to coincide with production's need for them. PTS: 1 DIF: Moderate NAT: IMA 3A - Strategic Planning
REF: P. OBJ: 4 TOP: AACSB - Reflective
29. Inventory levels for firms using JIT inventory systems compared to firms not using JIT will be: a. Higher for both work in process and finished goods. b. Higher for work in process and finished goods but lower for raw materials. c. Lower for raw materials, work in process, and finished goods. d. Higher for finished goods but lower for raw materials and work in process. ANS: C Manufacturers using just-in-time inventory systems will maintain lower inventory levels for all three types of inventories. PTS: 1 DIF: Moderate NAT: IMA 3A - Strategic Planning
REF: P. OBJ: 4 TOP: AACSB - Reflective
30. Listed below are steps of purchasing and receiving materials: 1. 2. 3. 4.
The receiving clerk prepares a receiving report. Purchase requisitions are prepared to notify the purchasing agent that additional materials are needed. The purchase of merchandise is recorded by the accounting department. The purchasing agent completes a purchase order.
In which order would these events typically happen? a. 4, 2, 3, 1 b. 2, 4, 3, 1 c. 2, 4, 1, 3 d. 4, 2, 1, 3 ANS: C The storeroom keeper will prepare a purchase requisition to notify the purchasing agent that additional materials are needed. The purchasing agent will then complete a purchase order and send it to the vendor. When the goods are received, the receiving clerk will prepare a receiving report which is compared to the vendor’s invoice and the purchase order. At that time, the accounting department will record the purchase of the inventory items in the general ledger. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
REF: P. OBJ: 2 TOP: AACSB - Analytic
31. The duties of the purchasing agent would include all of the following except: a. Placing purchase orders. b. Counting and identifying materials received. c. Compiling information that identifies vendors and prices. d. Verifying invoices and approving them for payment.
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ANS: B The receiving clerk is responsible for counting and identifying the materials received. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
REF: P. OBJ: 2 TOP: AACSB - Analytic
32. The employee who is responsible for preparing purchase requisitions is most likely the: a. Storeroom keeper. b. Purchasing agent. c. Production supervisor. d. Receiving clerk. ANS: A The storeroom keeper is usually the employer responsible for preparing purchase requisitions when the stock is running low to notify the purchasing agent that the inventory needs to be replenished. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
REF: P. OBJ: 2 TOP: AACSB - Analytic
33. A receiving report would include all of the following information except: a. What the shipment contained. b. The purchase order number. c. The customer. d. The date the materials were received. ANS: C It is unlikely the receiving report would contain the customer name; however, a listing of what the shipment contained, the purchase order number and the date of the receipt would be necessary information used in matching the receiving report to the vendor’s invoice and the purchase order. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Managment
REF: P. OBJ: 2 TOP: AACSB - Reflective
34. The accounting system used with JIT manufacturing is called: a. Backflush costing. b. The push system. c. Perpetual inventory costing. d. First-in, first-out. ANS: A The accounting system used with JIT is called backflush costing. PTS: 1 DIF: Easy NAT: IMA 2B - Cost Management
REF: P. OBJ: 4 TOP: AACSB - Analytic
35. In a backflush accounting system, a single account is used for the following: a. Work in process and finished goods inventories. b. Finished goods inventories and cost of goods sold. c. Factory overhead and raw materials. d. Raw materials and work in process inventories. ANS: D
Full file at //testbank360.eu/test-bank-principles-of-cost-accounting-14th-edition-vanderbeck
In a backflush accounting system, a single account, Raw and In Process is used because in JIT manufacturing, materials are delivered directly into production. PTS: 1 DIF: Easy NAT: IMA 2B - Cost Management
REF: P. OBJ: 4 TOP: AACSB - Analytic
36. The general ledger entry to record the purchase of materials is: a. Debit-Purchases Received Credit-Purchase Orders Outstanding b. Debit-Materials Credit-Purchase Orders Outstanding c. Debit-Purchases Received Credit-Accounts Payable d. Debit-Materials Credit-Accounts Payable ANS: D The Materials account is debited and Accounts Payable is credited when materials are purchased. Purchase orders are not recorded in the general ledger. PTS: 1 DIF: Easy NAT: IMA 2B - Cost Management
REF: P. OBJ: 3 TOP: AACSB - Analytic
37. The inventory method which results in the most recent costs being assigned to inventory on hand at the end of the period is: a. First-in, first-out. b. Last-in, first-out. c. Last-in, last-out. d. Moving average. ANS: A First-in, first-out (FIFO) results in the most recent costs being assigned to ending inventory because the oldest costs are assigned to issues first. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
REF: P. OBJ: 3 TOP: AACSB - Reflective
38. The inventory method which results in the most recent cost being assigned to cost of goods sold is: a. First-in, first-out. b. Last-in, first-out. c. Last-in, last-out. d. Moving average. ANS: B Last-in, first-out (LIFO) results in the most recent costs being assigned to cost of goods sold. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
REF: P. OBJ: 3 TOP: AACSB - Reflective
Full file at //testbank360.eu/test-bank-principles-of-cost-accounting-14th-edition-vanderbeck
39. Under a backflush accounting system, the following entry is made when products are completed: a. Debit-Finished Goods Credit-Work In Process b. Debit-Cost of Goods Sold Credit-Raw and In Process Credit-Conversion Costs c. Debit-Finished Goods Credit-Raw and In Process Credit-Conversion Costs d. Debit-Cost of Goods Sold Credit-Finished Goods ANS: C Finished goods are debited when goods are completed under backflush accounting, similar to other accounting systems. However, work in process is not credited, as that account does not exist under backflush accounting. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
REF: P. OBJ: 4 TOP: AACSB - Analytic
40. Sully Company uses 3,000 yards of canvas each day to make tents. It usually takes ten days from the time Sully orders the material to when it is received. If Sully’s desired safety stock is 12,000 yards, what is Sully’s order point? a. 12,000 yards b. 15,000 yards c. 30,000 yards d. 42,000 yards ANS: D 3,000 (daily usage) x 10 (lead time) Safety stock Order point PTS: 1 DIF: Moderate NAT: IMA 3A - Strategic Management
30,000 12,000 42,000 REF: P. OBJ: 1 TOP: AACSB - Analytic
41. Order costs would include all of the following except: a. Receiving clerk’s wages. b. Storeroom keeper’s wages. c. Purchasing department’s telephone bill. d. Transportation in. ANS: B The storeroom keeper’s wages would be a storage cost. PTS: 1 DIF: Moderate NAT: IMA 3A - Strategic Management
REF: P. OBJ: 1 TOP: AACSB - Analytic
42. Carrying costs would include all of the following except:
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a. b. c. d.
Warehouse rent. Inspection employees’ wages. Losses due to obsolescence. Property taxes.
ANS: B Inspection would typically happen upon receipt of goods making this an order cost. PTS: 1 DIF: Moderate NAT: IMA 3A - Strategic Planning
REF: P. OBJ: 1 TOP: AACSB - Analytic
43. The following data pertains to Western Company’s materials inventory: Number of pounds required annually 16,000 Cost of placing an order $20 Annual carrying cost per pound of material $4 What is Western Company’s EOQ? a. 4,000 pounds b. 800 pounds c. 400 pounds d. 200 pounds ANS: C
= 400 PTS: 1 DIF: Hard NAT: IMA 3A - Strategic Management
REF: P. OBJ: 1 TOP: AACSB - Analytic
44. All of the following methods may be used to account for the revenue from scrap sales except: a. Credit Factory Overhead, if the scrap cannot be identified with a specific job. b. Credit Materials, if the scrap would have been able to be recycled. c. Credit Work in Process, if the scrap is identified with a specific job. d. Credit Scrap Revenue, which is included in the “Other Income” section of the income statement. ANS: B Scrap is a by-production. It would not be appropriate to credit materials because materials would have been credited when the materials were put into production. Depending on the circumstances, it would be appropriate to credit Factory Overhead, Work in Process or Scrap Revenue. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
REF: P. OBJ: 5 TOP: AACSB - Analytic
45. Harrison Industries produces 4,000 lunch boxes each day. The average number of units in work in process is 12,000, having an average cost of $60,000. The annual carrying costs relating to inventory are 10%.
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Consultants have determined that the work in process could be reduced by as much as a third by rearranging the factory floor. What is the current throughput time? a. Eight hours b. One day c. Two days d. Three days ANS: D Throughput is the amount of time it takes a unit to get through the system. Units in work in process = 12,000 = 3 days. Daily production 4,000 PTS: 1 DIF: Moderate NAT: IMA 3A - Strategic Management
REF: P. OBJ: 4 TOP: AACSB - Analytic
46. Harrison Industries produces 4,000 lunch boxes each day. The average number of units in work in process is 12,000, having an average cost of $60,000. The annual carrying costs related to inventory are 10%. Consultants have determined that the work in process could be reduced by as much as a third by rearranging the factory floor. What would the throughput time be if Harrison implements the recommended changes? a. Twelve hours b. One day c. Two days d. Three days ANS: C Throughput is the amount of time it takes a unit to get through the system. Units in work in process = 12,000 = 3 days x 1/3 = 1 day reduction Daily production 4,000 Three days less one day = two days PTS: 1 DIF: Moderate NAT: IMA 3A - Strategic Management
REF: P. OBJ: 4 TOP: AACSB - Analytic
47. Harrison Industries produces 4,000 lunch boxes each day. The average number of units in work in process is 12,000, having an average cost of $60,000. The annual carrying costs related to inventory are 10%. Consultants have determined that the work in process could be reduced by as much as a third by rearranging the factory floor. What would the reduction in annual carrying costs be if Harrison is able to implement the recommended changes? a. $2,000 b. $1,500 c. $6,000 d. $4,000 ANS: A Carrying cost = Average work in process inventory x carrying cost percentage
Full file at //testbank360.eu/test-bank-principles-of-cost-accounting-14th-edition-vanderbeck
Existing situation - $60,000 x 10% = $6,000 Inventory reduction $60,000 x 1/3 = $20,000 reduction New average inventory = $60,000 - $20,000 = $40,000 x 10% = $4,000 $6,000 - $4,000 = $2,000 reduction PTS: 1 DIF: Hard NAT: IMA 3A - Strategic Management
REF: P. OBJ: 4 TOP: AACSB - Analytic
48. The journal entry to record undamaged direct materials returned to the storeroom would be: a. Debit - Materials Credit - Finished Goods b. Debit - Factory Overhead Credit - Work in Process c. Debit - Materials Credit - Factory Overhead d. Debit - Materials Credit - Work in Process ANS: D The entry to record the return of direct materials to the storeroom is the reverse of the entry that is made when the materials are issued to production. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
REF: P. OBJ: 3 TOP: AACSB - Analytic
PROBLEM 1. The Reardon Company manufactures novelty toys. In June, 400 of these toys were completed on Job Order No. 2525. On final inspection, 20 toys were rejected and transferred to the spoiled goods inventory to be sold at $2 each. Costs recorded on Job Order No. 2525 follow: Direct materials Direct labor Factory overhead
$1,600 1,400 800
Prepare the journal entries to record the following: a. Charges for materials, labor, and factory overhead for Job Order No. 2525 b. Cost of the spoiled work, the transfer of the cost of the good toys to Finished Goods, and the sale of the imperfect toys, if the loss on spoilage is charged to all jobs worked on during the period c. Cost of the spoiled work, the transfer of the cost of the good toys to Finished Goods, and the sale of the imperfect toys, if the loss on spoilage is to be charged to Job Order No. 2525 only. (Round the new unit cost to the nearest whole cent, and
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assume part b, above, has not occurred.) ANS: (a)
Work in Process ($3,800/400 = $9.50) Materials Payroll (direct labor) Factory Overhead
3,800 1,600 1,400 800
Spoiled Goods (20 $2) Factory Overhead Work in Process (20 $9.50)
(b)
40 150 190
Finished Goods (380 $9.50) Work in Process
(c)
3,610 3,610
Cash Spoiled Goods
40
Spoiled Goods Work in Process
40
40
40
Finished Goods (380 $9.90*) Work in Process
3,762 3,762
Cash Spoiled Goods * $3,800 - $40 380
40 40
=
$9.895 rounded
PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
REF: P. OBJ: 5 TOP: AACSB - Analytic
2. The following accounts are maintained by the Sprague Manufacturing Company in its general ledger: Materials, Work in Process, Factory Overhead, and Accounts Payable. The materials account had a debit balance of $40,000 on November 1. A summary of material transactions for November shows: (1) Materials acquired on account, $62,000 (2) Direct materials issued, $58,500 (3) Direct materials returned to storeroom, $1,200 (4) Indirect materials issued, $3,600 (5) Indirect materials returned to storeroom, $550 (6) Materials on hand were $200 less than the stores ledger balance a. b. c.
Prepare journal entries to record the materials transactions. Post the journal entries to T-accounts. What is the balance of the materials account on November 30?
ANS: (a)
(1)
Materials
62,000
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Accounts Payable (2) (3) (4) (5) (6)
62,000
Work in Process Materials
58,500 58,500
Materials Work in Process
1,200
Factory Overhead Materials
3,600
1,200
3,600
Materials Factory Overhead
550
Factory Overhead Materials
200
(b) Materials Bal. 40,000 | (2) 58,500 (1) 62,000 | (4) 3,600 (3) 1,200 | (6) 200 (5) 550 | 103,750 | 62,300 Work in Process (2) 58,500 | (3) 1,200
550
200
Accounts Payable | (1) 62,000
(4) (6)
Factory Overhead 3,600 | (5) 550 200 |
(c) The balance of the materials account = $103,750 - $62,300 = $ 41,450
PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
REF: P. OBJ: 3 TOP: AACSB - Analytic
3. The Reddog Company predicts that 3,200 units of material will be used during the year. The expected daily usage is 15 units, there is an expected lead time of 10 days, and there is a safety stock of 200 units. The material is expected to cost $4 per unit. It is estimated that it will cost $25 to place each order. The annual carrying cost is $1 per unit. a. Compute the order point. b. Determine the most economical order quantity by use of the formula. c. Compute the total cost of ordering and carrying at the EOQ point. ANS: (a)
(b)
Order point
= = =
Expected usage during lead time + Safety stock (15 units 10 days) + 200 350 units
Full file at //testbank360.eu/test-bank-principles-of-cost-accounting-14th-edition-vanderbeck
(c)
Annual ordering cost
=
Number of orders Cost per order
=
3,200 Annual usage 400 EOQ
$25
=
8 $25 = $200
Annual carrying cost
=
Average inventory Carrying cost per unit
Average inventory
= =
(1/2 EOQ) (1/2 400)
=
400 $1.00 = $400
Annual carrying cost
PTS: 1 DIF: Hard NAT: IMA 3A - Strategic Planning
+ +
Safety Stock 200
=
400
REF: P. OBJ: 1 TOP: AACSB - Analytic
4. Hawkins Company, which uses backflush costing, had the following transactions during the month of June: (a) (b) (c) (d)
Purchased raw materials on account, $350,000. Requisitioned raw materials to production, $330,000. Distributed direct labor costs, $52,300. Manufacturing overhead incurred, $107,000. (Use Various Credits for the account in the credit part of the entry.)
Prepare journal entries to record the above transactions. ANS: (a)
Raw and In-Process Accounts Payable
350,000 350,000
(b)
No entry
(c)
Conversion Costs Payroll
52,300
Conversion Costs Various Credits
107,000
(d)
PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
52,300
107,000
REF: P. OBJ: 4 TOP: AACSB - Analytic
5. The materials account of the Flynn Company reflected the following changes during May:
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500 300 400 200 300
Balance, May 1 Received, May 5 Issued, May 10 Received, May 15 Issued, May 25
units @ $10 units @ $12 units units @ $15 units
Calculate the ending inventory at May 31 and the cost of the units issued in May using each of the following methods: (a) First in, first out (FIFO) (b) Last in, first out (LIFO) (c) Moving average ANS: (a) FIFO: Received Date 5/1 5/5
Quantity 300
Unit Price 12
Issued Amount
200
15
Balance Amount
3,600
5/10 5/15
Quantity
Unit Price
400
10
4,000
100 200
10 12
1,000 2,400
3,000
5/25
Quantity 500 500 300 100 300 100 300 200 100 200
Unit Price 10 10 12 10 12 10 12 15
Amount 5,000 8,600 4,600 7,600
12 15
4,200
Ending Inventory: 300 units having a total cost of $4,200 (100 units x $12) + (15 units x $15) Cost of Units Issued: 700 units having a total cost of $7,400 (4,000 + 1,000 + 2,400)
(b) LIFO: Date 5/1 5/5
Received
Issued
Unit Price
Unit Price
Quantity 300
12
Amount
5/25
200
15
Amount
3,600
5/10 5/15
Quantity
Balance
3,000
100 300
10 12
1,000 3,600
100 200
10 15
1,000 3,000
Quantity 500 500 300
Ending Inventory: 300 units having a total cost of $3,000 (300 x $10) Cost of Units Issued: 700 units having a total cost of $8,600 (1,000 + 3,600 + 1,000 + 3,000)
Unit Price 10 10 12
Amount 5,000 8,600
400 400 200
10 10 15
4,000
300
10
3,000
7,000
Full file at //testbank360.eu/test-bank-principles-of-cost-accounting-14th-edition-vanderbeck
(b) Moving Average: Received Date 5/1 5/5 5/10 5/15 5/25
Quantity
Unit Price
Issued Amount
300
12
3,600
200
15
3,000
Quantity
Balance
Unit Price
Amount
400
10.75
4,300
300
12.17
3,650
Quantity 500 800 400 600 300
Unit Price 10 10.75 10.75 12.17 12.17
Amount 5,000 8,600 4,300 7,300 3,650
Ending Inventory: 300 units having a total cost of $3,650 Cost of Units Issued: 700 units having a total cost of $7,950 (4,300 + 3,650) Unit cost calculations: 8,600 / 800 = 10.75 7,300 / 600 = 12.16667
PTS: 1 DIF: Hard NAT: IMA 2B - Cost Management
REF: P. OBJ: 3 TOP: AACSB - Analytic
6. Gilday Furniture Inc. produces custom furniture. Wood chips are an inevitable by-product of the cutting process, and are considered scrap. Gilday is unable to use this scrap; however, the company has an agreement to sell the scrap at market prices to a local company that processes the wood chips to make industrial fillers. Record the entries required for scrap under each of the following conditions: (a) The revenue received for scrap is to be treated as other income. The market value of wood chips is stable and is currently $200 per ton. The company has seven tons on hand. (b) The revenue received for scrap is to be treated as a reduction in manufacturing cost, but cannot be identified with a specific job. A firm price is not determinable for the scrap until it is sold. It is eventually sold for cash of $800. (c) The revenue received for scrap is to be treated as a reduction in manufacturing cost, and five tons of scrap are related to a special job where the company made numerous round tables. The market value of wood chips is stable and is currently $200 per ton. ANS: (a) Scrap Materials Scrap Revenue
1,400 1,400
Cash (or Accounts Receivable) Scrap Materials
1,400
(b) Cash (or Accounts Receivable) Factory Overhead
800
(c) Scrap Materials Work in Process Cash (or Accounts Receivable)
1,400 800 1,000 1,000 1,000
Full file at //testbank360.eu/test-bank-principles-of-cost-accounting-14th-edition-vanderbeck
Scrap Materials PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
1,000 REF: P. OBJ: 5 TOP: AACSB - Analytic
7. The Outdoor Manufacturing Company produces sporting equipment. The company maintains a single raw materials inventory account for both direct and indirect materials. The following information came from the factory ledger accounts for December: Raw Materials, December 1 Work in Process, December 1 Finished Goods, December 1 Raw materials purchases (during December) Direct labor Repairs and maintenance Indirect materials Utilities Indirect labor Supervisors' salaries Raw Materials, December 31 Work in Process, December 31 Finished Goods, December 31
$ 45,500 125,000 175,000 623,000 435,000 37,200 16,700 63,200 38,200 18,300 43,600 135,000 150,000
Compute the cost of direct materials used during the month of December. ANS: Raw materials inventory, December 1 Raw materials purchases Total materials available Less: Raw materials inventory, December 31 Raw materials used Less: Indirect materials used Direct materials used
$ 45,500 623,000 $668,500 43,600 $624,900 16,700 $608,200
Instructor Note: This question relates concepts from chapter 2 to those learned in chapter 1. PTS: 1 DIF: Moderate NAT: IMA 2B - Cost Management
REF: P. OBJ: 3 TOP: AACSB - Analytic
8. The following decisions and transactions were made for the Sanders Company in May: May 1 The production manager informed the storeroom keeper that the forcasted usage of Component X is 3,000 units. There are 1,500 units on hand, each having a unit cost of $20. The company maintains a minimun stock of 1,000 units. The storeroom keeper notifies the purchasing agent that the company will need 2,500 units of X to meet May’s production needs and maintain a minimum inventory of 1,200 units. May 3 The purchasing agent checks with a number of vendors and orders 2,500 units of Component X. Unfortunately, the price has gone up to $25.
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May 7 The shipment of Component X is received and inspected. The units are in good condition and the company received the number of units it ordered. May 9 The invoice covering Component X is received from the vendor and approved for payment. May 21 The May 9 invoice is paid in full. May 31 During the month, 2,950 units of Component X are issued to production. The company uses FIFO costing and a job order cost system. May 31 An inventory of the storeroom is taken at the end of the day and there are 1,040 units of Component X on hand. (a)
Prepare a table to answer the following questions: (1) What forms, if any, were used? (2) What entry, if any, was recorded?
(b)
Calculate the balance in the Materials account at May 31.
ANS: Date May 1
Form Purchase requisition
Account No entry
May 3
Purchase order
No entry
May 7
Receiving report
No entry
May 9
None
Materials Accounts Payable
62,500
Accounts Payable * Cash
62,500
Work in Process ** Materials
66,250
May 21 May 31 May 31 * **
Approved voucher Materials requistion Inventory report
Factory Overhead *** Materials
2,500 units x $25 = $62,500 FIFO Basis: Beginning Inventory Received Total available Issued (2,950 units)
Debit
Credit
62,500
62,500
66,250 250 250
1,500 units @ $20 30,000 2,500 units @ $25 62,500 4,000 units 92,500 (1,500) units @ $20 (30,000) (1,450) units @ $25 (36,250) Per perpetual records @ May 31 1,050 units @ $25 26,250 Per physical inventory @ May 31 1,040 Inventory adjustment needed 10 [email protected] $25
**
(1,500 x $20) + (1,450 x $25) = $66,250
Full file at //testbank360.eu/test-bank-principles-of-cost-accounting-14th-edition-vanderbeck
***
10 x $25 = $250
(b)
Units in inventory at May 31 = 1,040 units @ $25 = $26,000 per above
PTS: 1 DIF: Hard NAT: IMA 2B - Cost Management
REF: P. OBJ: 2, 3 TOP: AACSB - Analytic