Chapter 7 - Accounting FOR Materials ( Questions AND Answers) PDF

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Warning: TT: undefined function: 32 Warning: TT: undefined function: 32CHAPTER 7: ACCOUNTING FOR MATERIALS What are the major objectives of material control? One of the most important objectives of material control is maintaining the proper balance of materials on hand and avoiding to have an excess...

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CHAPTER 7: ACCOUNTING FOR MATERIALS 1. What are the major objectives of material control? One of the most important objectives of material control is maintaining the proper balance of materials on hand and avoiding to have an excessive amount in relation to scheduled production needs. Material control also aims to protect the inventories from unauthorized use or theft through safeguarding the assets. 2. What factors should management consider in determining the amount of investment in materials? Management should consider that an inventory of sufficient size and diversity for efficient operations must be maintained, but the size should not be excessive in relation to scheduled production needs. Order Point and Economic Order Quantity are the factors to be consider in determining (1) when orders should be placed, and (2) how many units should be ordered. 3. What is the meaning of “order point”? Order point is the point at which an item should be ordered, it occurs when the predetermined minimum level of inventory on hand is reached. 4. What kind of information and data are needed to calculate an order point? Calculation of order point includes usage, lead time, and safety stock. Wherein usage is the anticipated rate at which the materials will be used, lead time is the estimated time interval between the placement of an order and the receipt of the material and safety stock is the estimated minimum level of inventory needed to protect against running out of stock. 5. Normally, a manufacturer maintains an accounting system which includes a stores ledger and a general ledger account for Materials. Describe the relationship between the stores ledger and the materials ledger. Stores ledger is either a manual or computer record of the raw materials and production supplies stored in a production facility responsible in tracking the current quantity of items received, issued, and on hand while the materials ledger deals with the calculation of the cost of receipt, cost of the issued materials and cost of the returns. Meaning, the store ledger keeps the summary of records of materials and the material ledger will be the one in charge in the valuation of those materials. 6. A company may select an inventory costing method from a number of commonly used procedures. Briefly describe each of the following methods: a. First-in, first-out – Inventories are stated in terms of the most recent costs and expense is charged with the earliest costs incurred.

b. Moving Average – Applicable only for perpetual inventory system. After each new purchase, a new weighted average unit cost is calculated and it will be used to cost each subsequent issuance until another purchase is made. 7. What different methods that can be used to account for the sales value of the scrap materials? a. If the scrap recovered can be traced to a specific job, the entry is Scrap/Scrap Materials xx Work in Process

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b. If the scrap recovered are not traceable to a specific job, the entry is Scrap/Scrap Materials xx Miscellaneous Income

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c. If the scrap recovered are from factory supplies, the entry is Scrap/Scrap Materials xx Factory Overhead Control

xx

8. What distinguishes a product as being spoiled or defective? Even though both spoiled and defective units are units that do not meet production standards, they differ in terms on how they will be treated once discovered. The spoiled units are taken out of production and no further work is performed towards it while the defective units must be processed further in order to be saleable as good units or even as irregulars. 9. What are the different methods of accounting for spoiled units? a. If the spoiled materials are charged to a specific job, the entry is Spoiled Goods xx Work in Process

xx

b. If the spoiled materials are charged to all production, the entry is Spoiled Goods

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Factory Overhead Control

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Work in Process

xx

10. What are the different methods of accounting for defective units? a. If the defective materials are charged to a specific job, the entry is Work in Process

xx

Materials

xx

Payroll

xx

Factory Overhead Applied

xx

b. If the defective materials are charged to all production, the entry is Factory Overhead Control

xx

Materials

xx

Payroll

xx

Factory Overhead Applied

xx...