Deck 2: Accounting for Materials

Question 1

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.

Answer 1

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.

Question 2

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.

Answer 2

B
Costs related to the purchase and receipt of materials are considered order costs while costs related to the storage and maintenance of materials are considered storage costs. The storeroom keeper's wages would be a storage cost.

Question 3

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 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 total order cost and lower total carrying cost
B)Lower total order cost and higher total carrying cost
C)Higher total order cost and higher total carrying cost
D)Lower total order cost and lower total carrying cost

Answer 3

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 total order cost. However, due to the larger number of units ordered each time, the number of units stored would be greater and a higher total carrying cost would result.

Question 4

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.

Question 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.

Question 6

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

Question 7

The following data pertains to Western Company's materials inventory: What is Western Company's EOQ?

A)4,000 pounds
B)800 pounds
C)400 pounds
D)200 pounds

Question 8

The data used to calculate the order point include all of the following except:

A)the costs of placing an order.
B)the rate at which the material will be used.
C)the estimated time interval between the placement and receipt of an order.
D)the estimated minimum level of inventory needed to protect against stockouts.

Question 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. Assuming the company does not maintain safety stock, the average inventory is:

A)10,000 units.
B)7,500 units.
C)15,000 units.
D)6,000 units.

Question 10

Janet is the purchasing agent at Frameco Manufacturing. Her duties include vendor selection and ordering materials. Due to a recent economic downturn and resulting cut backs, Janet has been assigned the additional duty or preparing receiving reports after comparing the goods received to the purchase order. This is an example of:

A)unlimited access to materials.
B)independence of assigned functions.
C)misappropriation of assets.
D)a lack of segregation of duties.

Question 11

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)21,000 yards
C)30,000 yards
D)42,000 yards

Question 12

To effectively control materials, a business must maintain:

A)Limited access.
B)Combination of duties.
C)Safety stock.
D)None of these are correct.

Question 13

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.

Question 14

The following data refer to various annual costs relating to the inventory of a single-product company that requires 10,000 units per year: What is the annual carrying cost per unit?

A)$ .21
B)$ .29
C)$ .34
D)$ .44

Question 15

Marley Company hired a consultant to help improve its operations. The consultant's report stated that Marley's inventory levels are excessive and cited several negative consequences to Marley as a result. Which of the following was not cited in the report?

A)Possible other uses for working capital now tied up in inventory
B)Production stoppages due to parts not being available
C)Higher property taxes and insurance costs
D)Large quantities of obsolete materials

Question 16

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.
C)$12,600.
D)$800,000.

Question 17

Carrying costs would include all of the following except:

A)Warehouse rent.
B)Inspection employees' wages.
C)Losses due to obsolescence.
D)Property taxes.

Question 18

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.

Question 19

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.

Question 20

Sam Jones works at Seeker, Inc. Sam's duties include identifying where materials can be obtained most economically, placing orders and verifying invoices and approving them for payment. Sam is a(n):

A)receiving clerk.
B)accounts payable clerk.
C)purchasing agent.
D)production supervisor.

Question 21

The inventory method which results in the prices paid for earliest purchases 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.

Question 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 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.

Question 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. Raw Material A 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.

Question 24

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.

Question 25

The form that serves as authorization to withdraw materials from the storeroom is known as the:

A)Materials requisition.
B)Purchase order.
C)Purchase requisition.
D)Returned materials report.

Question 26

The inventory method which results in the prices paid for the earliest purchases 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.

Question 27

If a company receives a larger quantity of goods than had been ordered and keeps the excess for future use, a(n)______________ is prepared to notify the vendor of the amount of increase to accounts payable in the invoice.

A)credit memorandum
B)return shipping order
C)debit memorandum
D)additional purchase order

Question 28

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 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.

Question 29

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 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.

Question 30

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

Question 31

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 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)$1.5614.
D)$1.5125.

Question 32

At the end of the period, the balance in the Materials account should represent

A)the cost of materials purchased.
B)the cost of materials on hand.
C)the cost of materials issued into production.
D)the cost of materials included in Work in Process and Finished Goods.

Question 33

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.

Question 34

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 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:

A)$1.5125.
B)$1.475.
C)$1.55.
D)$1.4375.

Question 35

In a period of rising prices, the use of which of the following cost flow methods would result in the lowest tax liability?

A)FIFO
B)LIFO
C)Weighted average cost
D)Moving average cost

Question 36

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 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.

Question 37

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 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.

Question 38

When selecting a method of inventory costing, a company must consider all of the following except:

A)federal and state income tax regulations.
B)current economic conditions.
C)the flow of materials.
D)its rate of inventory turnover.

Question 39

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.

Question 40

Listed below are steps of purchasing and receiving materials:
1) The receiving clerk prepares a receiving report.
2) Purchase requisitions are prepared to notify the purchasing agent that additional materials are needed.
3) The purchase of merchandise is recorded by the accounting department.
4) 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

Question 41

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

Question 42

Under a backflush accounting system, the following entry is made when products are completed:

A)Debit-Finished GoodsCredit-Work In Process
B)Debit-Cost of Goods SoldCredit-Raw and In ProcessCredit-Conversion Costs
C)Debit-Finished GoodsCredit-Raw and In ProcessCredit-Conversion Costs
D)Debit-Cost of Goods SoldCredit-Finished Goods

Question 43

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%. 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

Question 44

During March, Hart Company incurred the following costs on Job 122 for the manufacture of 200 motors: If the defects resulted from the exacting specifications of the order, what is the journal entry needed to record the rework costs?

Question 45

The journal entry to record undamaged direct materials returned to the storeroom would be:

A)Debit - MaterialsCredit - Finished Goods
B)Debit - Factory OverheadCredit - Work in Process
C)Debit - MaterialsCredit - Factory Overhead
D)Debit - MaterialsCredit - Work in Process

Question 46

Just-in-time production techniques:

A)Require inventory buffers between work centers.
B)Were first utilized by U.S. manufacturers and later exported to Japan.
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.

Question 47

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.

Question 48

Rowe Co.'s Job 401 for the manufacture of 2,200 wagons was completed during August at the unit costs presented below. Final inspection of Job 401 disclosed 200 wagons coats that were sold to a jobber for $6,000. Assume that the spoilage loss is charged to all production during August. What would be the journal entry to record the spoilage?

Question 49

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.

Question 50

During March, Hart Company incurred the following costs on Job 122 for the manufacture of 200 motors: 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

Question 51

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 ProcessCredit - Materials
B)Debit - MaterialsCredit - Factory Overhead
C)Debit - MaterialsCredit - Work in Process
D)Debit - Factory OverheadCredit - Materials

Question 52

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.

Question 53

During March, Hart Company incurred the following costs on Job 122 for the manufacture of 200 motors: 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?

Question 54

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.

Question 55

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.

Question 56

The general ledger entry to record the purchase of materials is:

A)Debit-Purchases ReceivedCredit-Purchase Orders Outstanding
B)Debit-MaterialsCredit-Purchase Orders Outstanding
C)Debit-Purchases ReceivedCredit-Accounts Payable
D)Debit-MaterialsCredit-Accounts Payable

Question 57

Xander Company anticipates that usage of Component T will be 100 units daily, which equates to around 25,000 for the year. The material is expected to cost $5 per unit. Once an order is placed with its vendor, it takes five days to receive the goods, and the cost of placing each order is $50. As a result, Xander keeps 1,000 units on hand to avoid stockouts. The carrying cost associated with each unit is $10.
a.Compute the order point.
b.Determine the most economical order quantity.

Question 58

Rowe Co.'s Job 401 for the manufacture of 2,200 wagons was completed during August at the unit costs presented below. Final inspection of Job 401 disclosed 200 spoiled wagons that were sold to a jobber for $6,000. 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?

Question 59

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

Question 60

Rowe Co.'s Job 401 for the manufacture of 2,200 wagons was completed during August at the unit costs presented below. Final inspection of Job 401 disclosed 200 spoiled wagons that were sold to a jobber for $6,000. 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 wagons produced on Job 401?

A)$56.00
B)$58.60
C)$53.00
D)$48.18

Question 61

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: Compute the cost of direct materials used during the month of December.

Question 62

The materials account of the Flynn Company reflected the following changes during May: Assuming that Flynn Company maintains perpetual inventory records, 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

Question 63

The materials account of the Herbert Company reflected the following changes during August: Assuming that Herbert Company maintains perpetual inventory records, calculate the cost of the ending inventory at August 31 and the cost of the units issued in August using the moving average method.

Question 64

Hawkins Company, which uses backflush costing, had the following transactions during the month of June:
(a)
Purchased raw materials on account, $350,000.
(b)
Requisitioned raw materials to production, $330,000.
(c)
Distributed direct labor costs, $52,300.
(d)
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.

Question 65

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: 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 assume part b, above, has not occurred.)

Question 66

The materials account of the Herbert Company reflected the following changes during August: Assuming that Herbert Company maintains perpetual inventory records, calculate the cost of the ending inventory at August 31 and the cost of the units issued in August using the LIFO method.

Question 67

The materials account of the Herbert Company reflected the following changes during August: Assuming that Herbert Company maintains perpetual inventory records, calculate the cost of the ending inventory at August 31 and the cost of the units issued in August using the FIFO method.

Question 68

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.

Question 69

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 purchased 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.Prepare journal entries to record the materials transactions.
b.Post the journal entries to T-accounts.
c.What is the balance of the materials account on November 30?

Question 70

The following decisions and transactions were made for the Sanders Company in May:
May 1 The production manager informed the storeroom keeper that the forecasted 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 minimum 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.
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.