TRUE OR FALSE.

1. Production process is a non-value activity.

2. When the scrap value is small, no entry is required even if the scrap is due to
immateriality.
3. The stock card contains an account for each material used in the manufacturing
process. Each account shows the number of units on hand and their cost.
4. Spoiled units may be corrected, and sold at the price of good units.
5. If the amount of materials on hand is more than the balance in the materials control
account there is a shortage
6. In backflush accounting, direct materials are usually insignificant in a highly automated
system, so is not cost effective to account for it separately.
7. Under investment control there must be limited access and segregation of duties.
8. An effective system of cost control is designed to control the actions of people
responsible for the expenditures because const control themselves.
9. Cost flows and physical flows of units are identical.
10. The revenue from scrap sales should be credited to income account all the time.
11. For materials returned to vendors the books of original entry is the general ledger.
12. Factory overhead account is debited for indirect materials issued to production even
under backflush costing.
13. The received column in the stock cards are used every time purchases are made.
14. Storing materials in the storeroom is an example of a non-value added activity.
15. The point at which an item should be ordered is called economic order quantity.

MULTIPLE CHOICE.
1. The effectively control materials, a business must maintain:
a. None of These Are Correct
b. Safety Stock
c. Limited Access
d. Combination of Duties
2. If the amount of materials on hand at the end of the period is more than the control
account balance, the following entry should be made:
a. Debit – Materials, Credit – Work in Process
b. Debit – Work in Process, Credit – Materials
c. Debit – Materials, Credit – Factory Overhead
d. Debit – Factory Overhead, Credit – Materials
3. The employee who is responsible for ordering the required materials from the supplier is
most likely the:
a. Receiving Clerk
b. Storeroom Keeper
c. Production Supervisor
d. Purchasing Agent
4. In period of rising prices, the use of which of the following cost flow methods would result
in the lowest gross margin?
a. Moving Average Cost
b. LIFO
 c. FIFO
d. Weighted Average Cost
5. In a period of failing prices, the use of which of the following cost flow methods would
result in the highest cost of cost of goods sold?
a. Moving Average Cost
b. Weighted Average Cost
c. LIFO
d. FIFO
6. Carrying costs would include all of the following except:
a. Property Taxes
b. Warehouse Rent
c. Inspection Employees’ Wages
d. Losses Due to Obsolescence
7. In a backflush accounting system, a single account is used for the following:
a. Finished Goods Inventory and Cost of Goods Sold
b. Factory Overhead and Raw Materials
c. Work in Process and Finished Goods Inventories
d. Labor and Overhead
8. At the end of the period, the balance in the Materials account should represent:
a. The Cost of Materials Issued into Production
b. The Cost of Materials Purchased
c. The Cost of Materials Included in Work in Process and Finished Goods
d. The Cost of Materials on Hand, Not Yet Put into Production
9. The general ledger entry to record the purchase of materials is
a. Debit – Materials, Credit – Accounts Payable
b. Debit – Materials, Credit – Purchase Orders Outstanding
c. Debit – Purchases Received, Credit – Accounts Payable
d. Debit – Purchases Received, Credit – Purchase Orders Outstanding
10. Listed below are steps of procuring materials for production:
a) 1. The receiving clerk checks the quantity and quality of incoming materials.
b) 2. The purchasing agent issue the purchase order to the vendor.
c) 3. The production floor supervisor issues a materials requisition.
d) 4. The storeroom clerk issues a purchase requisition.
11. The form that serves as authorization to withdraw materials from the storeroom is known
as the:
a. Purchase Order
b. Purchase Requisition
c. Materials Requisition
d. Returned Materials Report
12. During March, Hart Company incurred the following costs on Job 120 for the
manufacture of 200 motors:

Original Cost Accumulation:

Direct Materials 2,600
Direct Labor 900
Factory Overhead 1,350
4,850
 Direct Cost of Reworking 10 units:
Direct Materials 100
Direct Labor 180
Factory Overhead 270

Assume the rework costs are to be spread over all jobs that go through the production
cycle. The journal entry needed to record the rework costs includes:
a. A debit to work in process amounting to 550.
b. A debit to factory overhead amounting to 1,350.
c. A debit to factory overhead amounting to 550.
d. A credit to work in process amounting to 550.
13. The data used to calculate the order point include all of the following except:
a. The rate at which the material will be used.
b. The estimated minimum level of inventory needed to protect against stockouts.
c. The cost of placing an order.
d. The estimated time interval between the placement and receipt of an
14. Arwen 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
Arwen’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 Cost and Higher Total Carrying Cost
b. Higher Total Cost and Lower Total Carrying Cost
c. Lower Total Order Cost and Higher Total Carrying Cost
d. Lower Total Order Cost and Lower Total Carrying Cost
15. Just-in-time production techniques:
a. Require a high degree of cooperation and coordination between supplier and
manufacturer.
b. Require inventory buffers between work centers.
c. Produce goods for inventory with the hope that demand for these goods will then be
created.
d. Were first utilized by U.S. manufacturers and later exported to Japan.

SHORT PROBLEM.
1. During March, Hart Company incurred the following costs on Job 125 for the
manufacture of 300 motors:

Original Cost Accumulation:

Direct Materials 2,600
Direct Labor 900
Factory Overhead 1,350
4,850
Direct Cost of Reworking 10 units:
Direct Materials 100
Direct Labor 180
Factory Overhead 270
 The rework costs were attributable to the exacting specification of Job 125, and the full
rework costs were charged to this specific job. What is the cost per finished unit of Job
125?
2. 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 0.5
Transportation-In on Purchases .18
Storage .16
Insurance .10
What is the annual carrying cost per unit?
3. Rowe Co.’s Job 401 for the manufacture of 2,100 wagons was completed during August
at the unit costs presented below.

Direct Materials 20
Direct Labor 17
Factory Overhead 13
50
Final inspection of Job 401 disclosed that 150 wagons were spoiled and sold to a jobber
for 22 each.
Assume that the spoilage loss is charged to all production during August. How much is
should be charged to Factory Overhead?
4. The Kennedy Company uses throttles in its assembly of lawn mowers. Information as to
balances on hand, purchases, and requisitions of throttles is given in the following table:

Number Unit Balance

Date Transaction of Units Price of Units
Jan. 1 Beg. Balance 50 2.50 50
Jan. 20 Purchased 150 3.00 200
Feb. 3 Issued 40 160
Mar. 25 Issued 70 90
Jun. 14 Purchased 75 4.00 165
If a perpetual inventory record of throttles is maintained on a moving average basis, the
165 items in inventory on June 14 will have a unit cost of
5. The Ferme 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:

Raw Materials, December 1 45,500

Work in Process, December 1 125,000
Finished Goods, December 1 175,000
Raw materials purchases (during December) 623,000
Direct Labor 435,000
Repairs and Maintenance 37,200
Indirect Materials 17,100
Utilities 63,200
Indirect Labor 38,200
Supervisors' Salaries 18,300
Raw Materials, December 31 43,600
Work in Process, December 31 135,000
Finished Goods, December 31 150,000
Compute the cost of direct materials used during the months of December.
6. Rowe Co.’s Job 401 for the manufacture of 2,100 wagons was completed during August
at the unit costs presented below.

Direct Materials 20
Direct Labor 17
Factory Overhead 13
50
Final inspection of Job 401 disclosed that 150 wagons were spoiled and sold to a jobber
for 22 each. Assume that the spoilage loss is charged to all production during August.
How much should be recognized as spoiled goods inventory?
7. The Egbert Company uses an industrial chemical, XRG, in a manufacturing process.
Information as to balances on hand, purchases, and requisitions of XRG is given in the
following table.
Number of Price per Balance of
Date Transaction Kilograms Kilogram Kilograms
Jan. 1 Beg. Balance 1,000 2.10 1,000
Jan. 24 Purchased 2,500 2.25 3,500
Feb. 8 Issued 700 2,800
Mar. 16 Issued 1,200 1,600
Jun. 11 Purchased 1,500 2.75 3,100
If a perpetual inventory recorded of XRG is maintained on a FIFO basis, the March 16
issue will amount to:
8. 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.

Compute the order point.

9. 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?
10. The materials account of the Lankford Company reflected the following changes during
January:

Balance, January 1 190 units $30

Received, January 5 130 units $32
Issued, January 18 240 units
Received, January 20 210 units $35
Issued, January 30 70 units

How much is the total cost of units issued for the month using FIFO method?
11. 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.

How much is the total order cost at EOQ?

12. 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 January 1.

A summary of material transactions for November shows:

a. Materials purchased on account, $62,000
b. Direct materials issued, $58,500
c. Direct materials returned to storeroom, $1,200
d. Indirect materials issued, $3,600
e. Indirect materials returned to storeroom, $550

What is the balance of the materials account on January 31?

13. Expected annual usage of a particular raw material is 1800,000 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:
14. 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.

Number of Unit Balance of

Date Transaction Units Price Units
Jan. 1 Beg. 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 on a FIFO basis, how much is the cost
of 200 units on hand as of August 18?
15. 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?