MULTIPLE CHOICES- COMPUTATIONAL

1. A company orders 10,000 units (a one-year supply) of material X at one time. Material X costs
P1 per unit, and order costs amount to P500 each time an order is placed. The costs to carry
Material X in inventory amount to 20% of the material cost.

For an entire year, the inventory carrying costs and order costs are:

a. P1,500
b. P2,000
c. P 500
d. P1,000

2. There are 1,000 trolls in stock, ang 1,500 are due in from orders that were placed previously.
The company sells trolls at the rate of 100 per day and finds that it takes an average of 20 days
for an order to be received. Because usage and lead times are known with certainty and because
the company has determined that an order must be placed now, the desired saftey stock quantity
must be equal to:

a. 500 units
b. 1,000 units
c. 2,500 units
d. 100 units

3. Jess Company has a plant that manufactures transistor radios. One component is an XT
transistor. Expected demand is for 5,200 of these transistors in March 2018. Jess estimates the
ordering cost per purchase order to be P250. The carrying cost for one unit of XT in stock is P5.

What is the EOQ for the XT transistor?

a. 721
b. 521
c. 520
d. 720

4. Using the data in No. 3, what is the number of deliveries of XT in April 2018?

a. 7.2 (rounded up to 8 deliveries in March 2018)

b. 8.2 (rounded up to 9 deliveries in March 2018)
c. 6.5 (rounded up to 7 deliveries in March 2018)
d. 5.8 (rounded up to 6 deliveries in March 2018)
5. Basketball Inc. Operates a megastore featuring sports merchandise. It uses EOQ decision model
to make inventory decisions. It is now considering inventory decisions for its PBA’s jerseys
product line. This is highly popular item. Data for 2018 are:

 Expected annual demand for PBA 10,000

 Ordering costs for purchase order P225
 Carrying costs per year P10 per jersey

Each jersey costs Basketball Inc. P40 (12% x P40 purchase price) plus P5.20 in relevant
insurance, handling, and theft-related costs. The purcahsing lead time is 7 days. Baketball Inc.
open 365 days a year.

What is the EOQ?

a. 671 jerseys
b. 751 jerseys
c. 550 jerseys
d. 851 jerseys

6. Using the data in No. 5, what is the number of orders that will be placed each year?

a. 15 orders
b. 20 orders
c. 25 orders
d. 30 orders

7. Using the data in No. 5, what is the reorder point? Rounded.

a. 192 jerseys
b. 180 jerseys
c. 200 jerseys
d. 105 jerseys

8. The annual demand for tennis racquets is 50,000 units, and carrying costs amount to P2 per unit.
Order costs of the company amount to P5. The optimum order quantity in units for tennis
racquets is (rounded to the nearest unit):

a. 500
b. 250
 c. 100
d. 625

9. The followig data is available for Taurus Company’s material YY:

Annual usage in units 10,000

Working days per year 250
Normal lead time in working days 30
Maximum lead time in working days 70

Assuming that the units of Material YY will be required evenly throughout the year, the order
point would be:

a. 2,800
b. 2,000
c. 2,105
d. 1,200

10. The Leo 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 P80 per occurrence

Carrying cost of safety stock P2 per unit
Number of purchase orders 5 per year

The options available to Leo are as follows:

Units of Safety Stock Probability of Running out of Safe Stock

10 50%
30 30%
50 10%
55 5%

What is the number of units of safety stock that will result in the lowest cost?

a. 55
b. 50
c. 50
d. 10

11. Aries Company has an order point at 1,400 units, usage during normal lead time of 600 units,
and an EOQ of 2,000 units. Its maximum inventory assuming normal lead time and usage,
would be:

a. 2,800 units
 b. 3,400 units
c. 2,000 units
d. 1,200 units

12. The following data refer to various annual costs relating to the inventory of a single product
company:

Units transportation cost on purchases P.20

Storage cost per unit .12
Insurance cost per unit .10
Annual interest foregone from alternate investment
of funds P800
Annual number of units required 10,000

What is the annual carrying cost per unit?

a. P.30
b. P.42
c. P.50
d. P.22

13. The following data relates to Bull Company’s Material X:

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 X 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. 600 350
d. 750 600

14. Venus Manufacturing Company uses 1,000 units of Chip annually in its production. Order costs
consist of P10 for placing a long-distance call to make the order and P40 for delivering the order
by truck to the company warehouse. Each Chip costs P100 and the carrying costs are estimated
at 15.625% of the inventory cost.

What is the economic order quantity for Chip?

a. 80
b. 90
 c. 100
d. 120

15. Using the data in No.14, what is the total order cost?

a. P625
b. P550
c. P525
d. P650

16. Using the data in No.14, what is the carrying cost for the year?

a. P625
b. P650
c. P550
d. P525

17. Pluto Company has developed the following data to assist in controlling one of its material
inventory items:

Economic order quantity 1,000 liters

Average daily use 100 liters
Maximum daily use 120 liters
Working days per year 250 days
Safety stock 140 liters
Cost of carrying inventory P1.00 per liter per year
Lead time 7 working days

What is the reorder point?

a. 840 liters
b. 800 liters
c. 900 liters
d. 830 liters

18. Using the data in No. 17, what is the average inventory?

a. 640 liters
b. 650 liters
c. 740 liters
d. 700 liters

19. Using the data in No. 17, what is the maximum inventory assuming normal lead time and usage?

a. 1,140 liters
b. 1,400 liters
c. 1,200 liters
d. 1,240 liters
20. Using the data in No. 17, what is the cost of placing one order?

a. P20
b. P25
c. P30
d. P35
 MULTIPLE CHOICES - THEORETICAL

1. In a well controlled materials system, the Purchasing Agent performs the following activities ex
cept the:

a. placing of purchase orders with suppliers.

b. receiving of purchases requisitions.
c. approving and checking of invoices.
d. preparation of purchase order.

2. The purchase requisition is a document used to:

a. initiate the return of merchandise to the vendor.

b. inform the purchasing agent of a need for materials.
c. initiate payment for materials ordered.
d. inform the Purchasing Department of a receipt of materials

3. The materials requisition:

a. authorizes the storeroom to deliver types and quantities of materials to a given departmen
t.
b. is the list of materials requirements for each step in the production cycle.
c. informs the purchasing agent of the quantity and type of materials needed.
d. contracts for quantities to be delivered.

4. The purchase order:

a. is the list of materials requirements for each step in the production cycle.
b. contracts for quantities to be delivered.
c. informs the purchasing agent of the quantity and kind of materials needed.
d. authorizes the storeroom to delivered materials to a given department.

5. The bill of materials

:
a. is the list of materials requirements for each step in the production sequence.
b. informs the purchasing agent of the quantity and kind of materials needed.
c. certificates quantities received and reports result of inspection and testing.
d. authorizes the storeroom to deliver types and quantities of materials to a certain
department.
6. The receiving report:

a. is the list of materials requirements for each step in the production cycle.
b. certifies quantities received and reports results of inspection and testing.
c. informs the purchasing agent of the quantity and kind of materials needed.
d. contracts for quantities to be delivered.

7. The purchase requisition may originate from all of the following except:

a. A storeroom employee.
b. A materials record clerk.
c. A receiving department clerk.
d. Other department employee who needs materials of a special nature.

8. The receiving department does all of the following except:

a. Unloads and unpacks incoming materials.

b. Keeps informed concerning sources of supply, prices, and delivery schedules.
c. Matches materials received with descriptions on purchase orders.
d. Arranges for inspection, when necessary.

9. A company has been ordering more than the economic order quantity. This would result in:

a. More frequent order points.

b. Carry cost greater than order cost.
c. Equal safety stock costs and carry costs.
d. Carry cost less than order costs.

10. The purchasing department performs all of the following except:

a. Compares quantities received with the suppliers’ packing list.

b. Receives purchase requisitions for materials.
c. Keeps informed concerning sources of supply, prices, and delivery schedules.
d. Prepares and places purchase orders.
11. An inventory control technique that reviews quantities on hand periodically and orders sufficient
quantities to bring inventory up to a desired level expressed as a number of days’ or weeks’ supp
ly is the:

a. Order cycling method.

b. Two-bin method.
c. ABC inventory control method.
d. Min-max method.

12. The factor that need not be considered when calculating an inventory economic order quantity (
EOQ) is:

a. Safety stock level.

b. Annual stock level.
c. Annual sales of a product.
d. Order-placing costs.

13. Mars Company has correctly computed its EOQ as 500 units . However, management would ord
er in quantities of 600 units. How will Mars’ total annual purchase order cost and total annual ca
rry cost for an order quantity of 600 units compare to the respective amounts for an order quantit
y of 500 units?

a. Lower purchase order cost and higher carrying cost.

b. Higher purchase order cost and lower carrying cost.
c. Higher purchase order cost and higher carrying cost.
d. Lower purchase order costs and lower carry cost.

14. The materials control method that is based on the premise that the quantities of most stock items
are subject to definable limit is the:

a. Min-max method.
b. Cycle review method.
c. Two-bin method.
d. ABC plan.

15. The materials control method that is based on physical observation that an order point has been r
eached is the:

a. Two-bin method.
b. Cycle review method.
c. Min-max method.
d. ABC plan.
 MULTIPLE CHOICES- THEORETICAL
1. Under just-in-time manufacturing:

a. Raw materials are received just in time for use of production.

b. Subassembly parts are completed just in time for use in assembling finished goods.
c. Finished goods are completed just in time to be sold.
d. All of the above.

2. The primary objective of just-in-time manufacturing is to;

a. Accumulate overhead in activity cost pools.

b. Eliminate or reduce all manufacturing inventories.
c. Identify relevant activity cost driver.
d. Identify value-added activities.

3. One of the requirements for JIT system to be successful is:

a. Cyclical Production
b. Adequate inventory stock
c. Coupling it with job order costing
d. High quality and balanced work loads

4. All of the following are terms used to describe JIT effort to reduce inventories of work in process and
raw materials, except:

a. Backflush costing.
b. Stockless production
c. Lean production
d. Quality production.

5. Advantages that result from reducing raw materials inventory include all of the following except:

a. A decreased possibility of not being able to produce a unit when required.

b. A need for less storage space.
c. A reduced risk of obsolescence.
d. A reduced risk of damaged materials.

6. The JIT production ideal is a batch size of:

a. Zero
b. Ten
c. One
d. One hundred.

7. The objective of reducing inventory to zero is possible if all of the following conditions are present,
except:

a. Low or insignificant setup costs.

b. Minimum lead times
c. Long setup times
d. Balanced and level work loads
8. The continuing reduction of inventories is achieved by all of the following steps, except:

a. Once the problem is removed, the inventory level increased until another problem is discovered.
b. Inventories are reduced until a problem is discovered.
c. Once the problem is defined the inventory level is increased to keep the system operating smoothly.
d. The problem is analyzed the practical ways are identified to reduce it.

9. In a JIT system, velocity is inversely related to:

a. Throughout time
b. Backflushing
c. Acceleration
d. Zero inventory production

10. The cost accounting system that would be most apt to use a single inventory account entitled Materials
and In Process (MIP) account would be

a. Process Costing
b. Job order costing
c. Backflushing costing
d. Standard costing
 MULTIPLECHOICES- COMPUTATIONAL

 Clara Company has material cost in the June 1 Materials and In Process (MIP) Inventory account of
P10, 000. Materials received during June amounts to P205, 000 and materials cost in the June 30
Materials and In Process account amount to P12, 500. The amount to be backflushed from Materials and
In Process account to Finished Goods Inventory account at the end of June would be :

a. P215,000
b. P202,500
c. P207,500
d. P217,500

 The Love Company seeks to streamline the costing system at its Manila plant. It will use a backflush
costing system with three trigger points:

 Purchase of raw materials

 Completion of finished goods
 Sale of finished goods

There are no beginning inventories. The following data pertain to April 2018

Raw materials purchased P880,000

Raw materials used 850,000
Conversion costs incurred 422,000
Conversion costs applied to finished goods 400,000
Cost transferred to finished goods 1,250,000
Costs of goods sold 1,190,000

Assume no materials variances. The balance of MIP Inventory account at the end of April 2018 is:

a. P30,000
b. P880,000
c. P850,000
d. P0

 The Maganda Manufacturing Company uses Materials and In Process(MIP) inventory account. At the
end of each month, all inventories are counted, their conversion costs components are estimated, and
inventory account balances are adjusted accordingly. Raw materials cost is backflushed from MIP
account to Finished Goods account.
The following data is for the month of August:

Beginning balance of MIP account P38,700

Conversion costs incurred 4,800
Raw materials purchased 680,000
Conversion costs applied 5,300
 Ending balances of MIP account 41,900

The amount of direct materials and conversion costs to be backflushed to finished goods are:

a. P676,800 and P4,800 respectively.

b. P680,000 and P4,800 respectively.
c. P676,800 and P5,300 respectively
d. P680,000 and P5,300 respectively.

 The Action Corporation manufactures electrical meters. For May, there were no beginning inventories
of raw materials and no beginning and ending work in process. Action uses a JIT manufacturing system
and backflush costing with three trigger points for making entries in the accounting system:

 Purchase of raw materials- debited to Materials and In Process account

 Completion of finished goods- debited to Finished Goods Inventory account
 Sale of finished goods

 Action’s May standard cost per meter are direct materials, P25 and conversion costs, P20. The following
data apply to May manufacturing:

Raw materials and components purchased P550,000

Conversion costs incurred 440,000
Number of finished units manufactured 21,000
Number of Finished units sold 20,000

Number 4- Continued
The balances of Materials and In Process and Finished Goods inventory accounts at the end of May are;
a. P25,000 and P945,000 respectively
b. P550,000 and P45,000 respectively
c. P25,000 and P45,000 respectively
d. P550,000 and P945,000 respectively

 The Malakas Company produces telephones. For June, there were no beginning inventory of raw
materials and no beginning and ending work in process. Malakas uses a JIT manufacturing system and
backflush costing with two trigger points for making entries in its accounting system:

 Purchase of raw materials

 Sales of finished goods

Malakas’ standard cost per unit of telephone in June is direct materials, P26; conversion costs, P15. The
following data apply to June production:

Raw materials purchased P5,300,000

Conversion costs incurred 3,080,000
 Number of finished units manufactured 200,000
Number of finished units sold 192,000

The balances of Materials and In Process Inventory and Cost of Goods Sold accounts at the end of June
are:
a. P308,000 and P7,872,000 respectively
b. P5,300,000 and P7,872,000 respectively
c. P308,000 and P4,992,000 respectively
d. P4,992,000 and P2,880,000 respectively

 The Hudy Manufacturing Company uses a Materials and In Process (MIP) inventory account and
expensed all conversion costs to the cost of goods sold account. At the end of each month, all
inventories are counted, their conversion cost components are estimated and inventory account balances
are adjusted accordingly. Raw materials cost is backflushed from MIP to finished Goods. The following
information is for the month of April.

Beginning balances of MIP account, including P1,400

of conversion cost P31,000
Raw materials received on credit 367,000
Ending MIP inventory per physical count,
Including P1,800 conversion cost estimate 33,000

What is the amount of materials used to be backflushed from MIP to finished goods?
a. P365,000
b. P368,600
c. P367,000
d. P365,400

 The Chico manufacturing Company produces only for customer order and most work is shipped within
thirty-six hours after the receipt of an order. Chico uses a Materials and In Process (MIP) inventory
account and expensed all conversion costs to the costs of goods sold account. Work is shipped
immediately upon completion, so there is no finished goods inventory account. At the end of each
month, inventory is counted, its conversion cost component is estimated, and the MIP account balance is
adjusted accordingly. Raw material cost is backflushed from MIP to Cost of Goods Sold. The following
information is for the month of May:

Beginning balance of MIP account, including P1,300

of conversion cost P12,300
Raw materials received in credit 246,000
Ending MIP inventory per physical count,
Including P2,100 conversion cost estimate 12,100

Number 7- Continued
What is the amount of raw materials used to be backflushed from MIP to cost of goods sold?
 a. P246,000
b. P246,200
c. P247,000
d. P245,000

Uses the following data in answering Number 8 and 9

Jose Tuazon general manager of a highly automated coffee production plant in Bulacan has provided.
Tte following information for transactions that occurred during October. The production plant uses a JIT costing
system,

a. Raw materials costing P300,000 were purchased

b. All materials costing P300,000 were requisitioned for production.
c. Direct labor costs of P200,000 were incurred.
d. Actual factory overhead costs amounted to P995,000.
e. Conversion costs applied totalled P1,300,000. This includes the direct labor cost.
f. All units are complete and immediately sold.

 What is the over applied or under applied conversion costs for the month?

a. P305,000 over-applied
b. P195,000 under-applied
c. P105,000 over-applied
d. P 105,000 under-applied

 Assuming no adjustment has been made for over applied or under applied converson cost, what is the
balance of the cost of goods sold account on October 31?

a. P1,300,000
b. P1,495,000
c. P1, 600,000
d. 1,195,000

 Basilio Company has a cycle time of 3 days, uses a Materials and In Process (MIP) account, and charges
all conversion costs to Cost Of Goods Sold. At the end of each month, all inventories are counted, their
conversion costs components are estimated, and inventory account balances are adjusted. Raw material
cost is backflushed from MIP to Finished Goods. The following information is for June:

Beginning balance MIP account, including

P3,000 of conversion costs ` P29,250
Beginning balance of finished goods account
including P10,000 of conversion costs 30,000
Raw material received on credit 562,500
Ending MIP inventory per physical count,
including P4,500 of conversion costs 32,000
Ending finished goods per inventory physical count,
including P8,750 of conversion costs 26,250
 What is the balance of Costs of Goods Sold on June?
a. P561,000
b. P561,250
c. P563,750
d. P562,500

 If EDSA Company has material costs of P10,000 in the June 1 MIP inventory account, and P12,500 in
the June 30 MIP inventory account and the amount of raw materials used backflushed from MIP
inventory account on June 30 is P202,500. What is the amount of raw materials purchased on credit for
the month of June?

a. P205,000
b. P200,000
c. P225,000
d. P202,000
 PROBLEMS

PROBLEMS 2-1 RECORDING RAW MATERIALS PURCHASES

Big Manufacturers, Inc. located at 123 Molave Street Fairview Avenue, Quezon City, has an effective system of
internal control. During the month of April,2018, the following transactions occurred:
April 4: Purchase Requisition 178 received in the Purchasing Department. Purchase Order 144
is issued. The following materials are requisitioned and ordered:

Units Materials Description Purpose

4,390 103 2’x4’ plastic sheeting Stores
840 122 3’x5’ plastic sheeting Stores
1,890 142 4’x6’ plastic sheeting Stores

14: All materials listed on Purchase Order 144 are received. Receiving Report 403
is completed.
14: All materials listed on Receiving Report 403 went to the storeroom.
19: Debit Memorandum 085 is prepared.
19: Supplier’s Invoice 539( shown below ) is received. Disbursement Voucher 740 is
prepared and sent to the accounting department.

Small Products, Inc.

54 West Avenue
Cebu City
Sold to: Big Manufacturers, Inc. Invoice No. 539
123 Molave Street Date: 4/17/2018
Fairview Avenue, Quezon City

Date of Order Cust. Order No. Term Shipped Via F.O.B

April 4 144 2/10, n/30 fedex Quezon City

QUANTITY DESCRIPTION UNIT PRICE AMOUNT

4,390 103- 2’x4’ plastic sheeting P 1.20 P 5,268.00

840 122- 3’x5’ plastic sheeting 1.90 1,596.00
1,890 142- 4’x6’ plastic sheeting 2.60 4,914.00
P 11,778.00
Required:
 Prepare the Purchase Order 144 to Small Products, Inc. The purchase is charged to Materials
account No. 122. Sign your name as the purchasing agent.

 Prepare Receiving Report 403. Note that 140 of the 2' x 4' sheets are being returned to the
supplier because of imperfections in the sheets. They need not be replaced. The weights are 1/10
(.10) of a kilo each for the 2' x 4' sheets, 1/4 (.25) of a kilo each for the 3' x 5' sheets, and 1/2
(.50) of a kilo each for the 4' x 6' sheets. Record the weights of the goods accepted. The
shipment is delivered by Fedex on April 14, 2018. Charges are prepaid. Sign your name under
Received by. Assume that you are the storeroom supervisor. Sign Receiving Report 403
indicating that the materials have been turned over to the storeroom.

 Assume that you are the purchasing agent. Prepare Debit Memorandum 085 for 140 imperfect
sheets returned to the supplier via Air 21 motor express.

 Prepare Disbursement Voucher 0740 (Check No. 00127)

 Discuss the procedures Big Manufacturers, Inc. has taken to ensure that it has an effective
system of internal control over purchasing materials.

Problem 2-2: Journalize Materials Purchases

The following are the transactions of Eagle Company for the month of October 2018:
 Oct. 4: Purchase Requisition 127 for 4,800 units of Material X-54 is prepared by the storeroom
clerk. The material is to be ordered from the Veterans Corporation for P21.50 per unit. Terms
1/10, n/30.
 5: Purchase Order 048 is prepared for materials requisitioned on Requisition 127.
 21: Materials ordered from Veterans Corporation on Purchase Order 048 are received. Of the
4,800 units, all are rejected for imperfections and returned at once. Receiving Report 011 is
prepared. The purchase invoice is included in the carton.