ACC 123

Accounting for Materials

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.
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.
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.

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.

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.

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.
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

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:

Cost per unit

Order cost $ .05
Transportation-in on purchases .18
Storage .16
Insurance .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
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.
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.
c. $12,600.
d. $800,000.

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

12. Great Products 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 Great
Products’ 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
13. The Best Things 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

Transaction Number of Units Unit Price Balance of Units

Date
Jan. 1 Beginning balance 100 $1.40 100
Jan. 24 Purchased 300 $1.55 400
Feb. 8 Issued 80 320
Mar. 16 Issued 140 180
Jun. 11 Purchased 150 $1.62 330
Aug. 18 Issued 130 200
Sep. 6 Issued 110 90
Oct. 15 Purchased 150 $1.70 240
Dec. 29 Issued 140 100

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.

14. The Best Things 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

Transaction Number of Units Unit Price Balance of Units

Date
Jan. 1 Beginning balance 100 $1.40 100
Jan. 24 Purchased 300 $1.55 400
Feb. 8 Issued 80 320
Mar. 16 Issued 140 180
Jun. 11 Purchased 150 $1.62 330
Aug. 18 Issued 130 200
Sep. 6 Issued 110 90
Oct. 15 Purchased 150 $1.70 240
Dec. 29 Issued 140 100
 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:
a. $1.5125.
b. $1.475.
c. $1.55.
d. $1.4375.
15. The Best Things 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

Transaction Number of Units Unit Price Balance of Units

Date
Jan. 1 Beginning balance 100 $1.40 100
Jan. 24 Purchased 300 $1.55 400
Feb. 8 Issued 80 320
Mar. 16 Issued 140 180
Jun. 11 Purchased 150 $1.62 330
Aug. 18 Issued 130 200
Sep. 6 Issued 110 90
Oct. 15 Purchased 150 $1.70 240
Dec. 29 Issued 140 100

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.
16. The Best Things 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

Transaction Number of Units Unit Price Balance of Units

Date
Jan. 1 Beginning balance 100 $1.40 100
Jan. 24 Purchased 300 $1.55 400
Feb. 8 Issued 80 320
Mar. 16 Issued 140 180
Jun. 11 Purchased 150 $1.62 330
Aug. 18 Issued 130 200
Sep. 6 Issued 110 90
Oct. 15 Purchased 150 $1.70 240
 Dec. 29 Issued 140 100

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.

17. The Best Things 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

Transaction
Number of Units Unit Price Balance of Units
Date
Jan. 1 Beginning balance 100 $1.40 100
Jan. 24 Purchased 300 $1.55 400
Feb. 8 Issued 80 320
Mar. 16 Issued 140 180
Jun. 11 Purchased 150 $1.62 330
Aug. 18 Issued 130 200
Sep. 6 Issued 110 90
Oct. 15 Purchased 150 $1.70 240
Dec. 29 Issued 140 100

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.
18. 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
19. 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
20. 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.
21. 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.
22. 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.
23. 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

24. 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.
25. 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.
26. Sella Company uses 3,000 yards of canvas each day to make tents. It usually takes ten days
from the time Sella orders the material to when it is received. If Sella’s desired safety stock is 12,000
yards, what is Sella’s order point?
a. 12,000 yards
b. 15,000 yards
c. 30,000 yards
d. 42,000 yards
27. 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.
28. Carrying costs would include all of the following except:
a. Warehouse rent.
b. Inspection employees’ wages.
c. Losses due to obsolescence.
d. Property taxes.
29. The following data pertains to Wella 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 Wella Company’s EOQ?

a. 4,000 pounds
b. 800 pounds
c. 400 pounds
d. 200 pounds
30. 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
31. The Complete Package Company wishes to determine the amount of safety stock that
it should maintain for Product D to result in the lowest cost. The following
information is available:

Stockout cost ........................................................................... $ 80 per

occurrence
Carrying cost of safety stock ................................................... $ 2 per unit
Number of purchase orders ..................................................... 5 per year

The options available to Complete Package are as follows:

Units of Probability of Running

Safety Stock out of Safety Stock
10 50%
30 30%
50 10%
55 5%

The number of units of safety stock that will result in the lowest cost is:
A. 30
B. 50
C. 55
D. 10
E. none of the above

32.The following information relates to Jose Company's Material A:

Annual usage in units .................................................................................. 7,200

Working days per year................................................................................. 240
Normal lead time in working days .............................................................. 20
Maximum lead time in working days .......................................................... 45

Assuming that the units of Material A will be required evenly throughout the
year, the safety stock and order point would be:

Safety Stock Order Point

A. 750 1,350
B. 600 750
C. 600 1,350
D. 750 600
E. none of the above

33.The inventory model that follows the concept that 80% of the value of an
inventory is in 20% of the inventory items is the:
A. ABC plan
B. economic order quantity (EOQ) model
 C. just-in-time inventory system
D. materials requirements planning (MRP) system
E. zero inventory model

34.The materials control method that is based on the premise that the quantities of
most stock items are subject to definable limits is the:
A. cycle review method
B. min-max method
C. two-bin method
D. ABC plan
E. none of the above

35.The factor that need not be considered when calculating an inventory economic
order quantity (EOQ) is:
A. annual sales of a product
B. safety stock level
C. order-placing costs
D. storage costs
E. risk of inventory obsolescence and deterioration