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CHAPTER 6 ACCOUNTING FOR MATERIALS

Problem 1 - Norman Company


_____________
a)
EOQ = \/ 2 x 8,000 x 40
25
= 160 units
Ordering cost

=
=
=

Carrying cost

=
=
=

No of orders x ordering cost


8,000 x 40
160
2,000
Average inventory x 25
160 x 25
2
2000

Problem 2 Heavyweight Co.


1. Allocation based on cost
Product Invoice Percentage Share of Freight
X
11,250
49%
450
Y
13,500
49%
540
Z
15,750
49%
630

Total cost Cost/pound


11,700
2.60
14,040
2.34
16,380
2.184

2. Allocation based on shipping weight


Product Weight
Freight/pound Share of Freight Total Cost Cost/pound
X
4,500
.09
405
11,655
2.59
Y
6,000
.09
540
14,040
2.34
Z
7,500
.09
675
16,425
2.19
Problem 3 - Dovin Company
1. Amount debited to Materials = 100,000 x 80% x 90% x 90% = 64,800
2. Amount debited to Materials = 100000 x 80% x 90% x 90% x 98% = 63,504

Page 2
Problem 4
1. FIRST-IN, FIRST-OUT
Received
5

400 x 7.00

2,800

400 x 8.00

3,200

16

24

600 x 9.00

Issued

800 x 6.00

4,800

800 x 6.00
200 x 7.00

4,800
1,400

5,400

27

Balance
1,600 x 6.00
1,600 x 6.00
400 x 7.00
1,600 x 6.00
400 x 7.00
400 x 8.00
800 x 6.00
400 x 7.00
400 x 8.00
800 x 6.00
400 x 7.00
400 x 8.00
600 x 9.00
200 x 7.00
400 x 8.00
600 x 9.00

9,600`
9,600
2.800
9,600
2,800
3,200
4,800
2,800
3,200
4,800
2,800
3,200
5,400
1.400
3,200
5,400

Cost of materials issued = 4,800 + 4,800 + 1,400 = 11,000


Cost of ending inventory = 1,400 + 3,200 + 5,400 = 10,000
2, AVERAGE
Received
1
5 400 x 7.00
2,800
9 400 x 8.00
3,200
16
24 600 x 9.00
5,400
27

Issued

800 x 6.50

5,200

1,000 x 7.18

7,180

Cost of materials issued = 5,200 + 7,180 = 12,380


Cost of ending inventory = 8,620
Problem 5 Heaven & Earth
1. FIFO
Issued = 600 x 4.00 = 2,400
Cost of inventory - 200 x 5.00 =- 1,000
500 x 4.50 = 2,250
400 x 4.00 = 1,000

Balance
1,600 x 6.00
2,000 x 6.20
2,400 x 6.50
1,600 x 6.50
2,200 x 7.18
1,200 x 7.18

9,600
12.400
15,600
10,400
15,800
8,620

Page 3
2. WEIGHTED AVERAGE
Received
1
3
5 500 x 4.50
2,250
6
10
11
15 500 x 5.00
2,500
20 (300) x 5.00 ( 1,500)
26

Issued
250 x 4.00

1,000

150 x 4.20
110 x 4.20
( 10)x 4.20

630
462
( 42)

100 x 4.33

433

Balance
1,000 x 4.00
750 x 4.00
1,250 x 4.20
1,100 x 4.20
990 x 4.20
1,000 x 4.20
1,500 x 4.47
1,200 x 4.33
1,100 x 4.33

4,000
3,000
5,250
4,620
4,158
4,200
6,700
5,200
4,767

Balance
300 x 17.50
100 x 17.50
100 x 17.50
900 x 18.00
400 x 18.00

5,250
1,750
1,750
16,200
7,200

Problem 6 Sterling Company


A. PERPETUAL
1. FIFO
Received
1
8
10
900 x 18.00 16,200
18
20 1,200 x 18,25

200 x 1750

3,500

100 x 17.50
500 x 18.00

1,750
9,000

21,900

25

2. AVERAGE
Received
1
8
10 900 x 18.00
18
20 1,200 x 18.25
25

Issued

400 x 18.00
600 x 18.25

7,200
10,950

Issued
200 x 17.50

3,500

600 x 17.95

10,770

1000 x 18.175

18,175

16,200
21,900

Problem 7 Bedrock Company


a. Loss due to spoiled work is spread over all jobs
1. Work in process
Materials
Payroll
FO Applied

400 x 18.00
1,200 x 18.25

7,200
21,900

600 x 18.25

10,950

Balance
300 x 17.50
100 x 17.50
1,000 x 17.95
400 x 17.95
1,600 x 18.175
600 x 18.175

5,250
1,750
17,950
7,180
29,080
10,906

1,320,000
360,000
480,000
480,000

Page 4
2. Spoiled Goods
FO Control
Work in process (100 x 165)
3. Finished goods
Work in process
Unit cost = 1,303,500/7,900 = 165

8,000
8,500
16,500
1,303,500
1,303,500

B, Loss due to spoiled work is charged to the specific job


1. Work in process
Materials
Payroll
FO Applied

1,320,000
360,000
480,000
480,000

2. Spoiled Goods
Work in process

8,000

3. Finished goods
Work in process

1,312000

8,000

1,312,000

Problem 8 Kyralei Co.


1.
RAGC is charged with the cost of defective units
a.
Work in process
176,000
Materials
Payroll
FO Applied (40,000 x 140%)
b.

c.

2.

Work in process
Materials
Payroll
FO Applied
Finished goods
Work in process

80,000
40,000
56,000

23,200
4,000
8,000
11,200
199,200
199,200

Cost of correcting defective work in not charged to RAGC


a.
Work in process
180,000
Materials
80,000
Payroll
40,000
FO Applied (40,000 x 150%)
60,000
b.

FO Control
Materials
Payroll

24,000
4,000
8,000

Page 5
c.

Finished goods
Work in process

180,000
180,000

Problem 9 Little Mermaid


1.
Charged to specific job
a.
Work in process
75,000
Materials
Payroll
FO Applied (20,000 x 150%)
b.

c.

2.

Work in process
Materials
Payroll
FO Applied

25,000
20,000
30,000

1,250
500
300
450

Finished goods
Work in process

76,250
76,250

Charged to all production (FO rate should be 160% of direct labor cost)
a.
Work in process
77,000
Materials
25,000
Payroll
20,000
FO Applied (20,000 x 160^)
32,000
b.

c.

FO Control
Materials
Payroll
FO Applied

1,280
500
300
480

(300 x 160%)

Finished goods
Work in process

77,000
77,000

Problem 10 - Nicole Company


1.
Cost to correct defective units charged to specific job
a.
Work in process
9,000
Materials
Payroll
FO Applied (20,000 x 150%)
b.

Work in process
Materials
Payroll
FO Applied

5,000
2,000
2,000

100
60
20
20

Page 6
c.

2.

Finished goods
Work in process

Charged to all production


a.
Work in process
Materials
Payroll
FO Applied (20,000 x 160^)
b.

c.

FO Control
Materials
Payroll
FO Applied

3.

4.

9,000
5,000
2,000
2,000

60
20
20

(300 x 160%)

Finished goods
Work in process

Work in process
Materials
Payroll
FO Applied

9,000
9,000

300,000
117,000
100,000
83,000
4,350
1,650
1,500
1,200

Spoiled goods
Work in process

825

Finished goods
Work in process

303,525

Problem 12 Alexis Company


1.
Charged to specific job
a.
Work in process
Materials
Payroll
FO Applied
b.

9,100

100

Problem 11 Marvin Corporation1.


Work in process
Materials
Payroll
FO Applied
2.

9,100

Spoiled goods ( 600 x 50)


Work in process

825

303,525

700,000
350,000
150,000
200,000
30,000
30,000

Page 7
c.

2.

Finished goods
Work in process

670,000
670,000

Charged to all production


a.
Work in process (10,000 x 70)
Materials
Payroll
FO Applied

700,000
350,000
150,000
200,000

b.

c.

Spoiled goods
FO Control
Work in process (600 x 70)
Finished goods
Work in process (9,400 x 70)

30,000
12,000
42,000
658,000
658,000

Problem 13 Raindrops Company


_____________________
EOQ = \/ 2 x 60,000 x 800
1,200
Problem 14 EOQ =

____________________
\/ 2 z 100,000 x 413
25.30

a. Investment costs
Invoice price
Excise tax ( 125.00 x 4%)
Insurance on shipment
Total

P 125.00
5.00
2.00
P 132.00

b. Carrying costs
Cost of capital ( 132.00 x 15%)
Inventory insurance
Inventory tax ( 125.00 x 2%)
Total

P 19.80
3.00
2.50
P 25.30

c. Ordering costs
Shipping permit
Processing costs
Unloading
Total

P 300.00
23.00
90,00
P 413.00

Page 8
Problem 15 - Candice Foundry Inc.
1.
Spoiled units are due to internal failure
a.
Work in process
Materials
Payroll
FO Applied
b.

c.

2.

90,000
46,000
14,000
30,000

Spoiled goods ( 200 x 15.00)


Factory overhead control
Work in process ( 200 x 18.00)
Finished goods
Work in process

3,000
600
3,600
86,400
86,400

Spoiled units are due to customers specification


a.
Work in process
90,000
Materials
46,000
Payroll
14,000
FO Applied
30,000
b.

c.

Spoiled goods
Work in process

3,000

Finished goods
Work in process

87,000

TRUE/FALSE
1.
True
2.
False
3.
False
4.
True
5.
True
Multiple choice
1,
a
2,
b
3,
d
4,
a
5,
c

6.
7.
8.
9.
10.

3,000

87,000

False
False
False
False
True

6.
b
7.
b
8.
a
9. 700 at 5,400
10.
b

11.
12.
13.
14.
15.

11.
12.
13.
14.
15.

a
a
c
c
d

True
False
False
False
False

16.
17.
18.
19.
20.

d
b
b
a
b