Chapter 2 - Accounting for Materials

37. 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. 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 (round to 3 decimal places): A. $1.513. B. $1.475. C. $1.55. D. $1.438.

A. $1.513.

52. 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 reduction in annual carrying costs be if Harrison is able to implement the recommended changes? A. $2,000 B. $1,500 C. $6,000 D. $4,000

A. $2,000

29. The Benchley Company uses metal grates when assembling appliances. Information as to balances on hand, purchases, and requisitions of the grates is given in the following table. If a perpetual inventory record of the metal grates is maintained on a FIFO basis, what costs are assigned to the 150 units in ending inventory? A. 150 units @ $3.40 B. 15 units @ $3.40 and 135 units @ $3.24. C. 150 units @ $2.80. D. 15 units @ $3.40 and 135 units @ $2.80.

A. 150 units @ $3.40

26. The Sully 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. If a perpetual inventory record of XRG is maintained on a FIFO basis, the March 16 issue will consist of: A. 300 kilograms @ $2.00 and 900 kilograms @ $2.25. B. 1,000 kilograms @ $2.00 and 200 kilograms @ $2.25. C. 1,200 kilograms @ $2.25. D. 700 kilograms @ $2.00 and 500 kilograms @ $2.25.

A. 300 kilograms @ $2.00 and 900 kilograms @ $2.25.

33. 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. If a perpetual inventory record of Raw Material A is maintained on a LIFO basis, the September 6 issue will consist of: A. 80 units @ $1.55, 20 units @ $1.62 and 10 units @ $1.40. B. 110 units @ $1.55. C. 50 units @1.55 and 60 units @ 1.62. D. 20 units @ $1.62 and 90 units @ $1.55.

A. 80 units @ $1.55, 20 units @ $1.62 and 10 units @ $1.40.

53. The accounting system used with JIT manufacturing is called: A. Backflush costing. B. The push system. C. Perpetual inventory costing. D. First-in, first-out.

A. Backflush costing

40. 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

A. FIFO

30. The inventory method which results in the prices paid for earliest purchases 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.

A. First-in, first-out.

31. 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.

A. First-in, first-out.

2. To effectively control materials, a business must maintain: A. Limited access. B. Combination of duties. C. Safety stock. D. None of these are correct.

A. Limited access.

24. The form that serves as authorization to withdraw materials from the storeroom is known as the: A. Materials requisition. B. Purchase order. C. Purchase requisition. D. Returned materials report.

A. Materials requisition.

16. 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.

A. Storeroom keeper.

25. If a company receives a larger quantity of goods than had been ordered and keeps the excess for future use, a(n)______________ is prepared to notify the vendor of the amount of increase to accounts payable in the invoice. A. credit memorandum B. return shipping order C. debit memorandum D. additional purchase order

A. credit memorandum

5. The data used to calculate the order point include all of the following except: A. the costs of placing an order. B. the rate at which the material will be used. C. the estimated time interval between the placement and receipt of an order. D. the estimated minimum level of inventory needed to protect against stockouts.

A. the costs of placing an order.

23. 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.

B. Counting and identifying materials received.

58. All of the following methods may be used to account for the revenue from scrap sales except: A. Credit Factory Overhead, if the scrap cannot be identified with a specific job. B. Credit Materials, if the scrap would have been able to be recycled. C. Credit Work in Process, if the scrap is identified with a specific job. D. Credit Scrap Revenue, which is included in the "Other Income" section of the income statement.

B. Credit Materials, if the scrap would have been able to be recycled.

10. Carrying costs would include all of the following except: A. Warehouse rent. B. Inspection employees' wages. C. Losses due to obsolescence. D. Property taxes.

B. Inspection employees' wages.

39. In a period of rising prices, the use of which of the following cost flow methods would result in the lowest tax liability? A. FIFO B. LIFO C. Weighted average cost D. Moving average cost

B. LIFO

35. 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.

B. Last-in, first-out.

36. The inventory method which results in the prices paid for the earliest purchases 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.

B. Last-in, first-out.

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 order cost and lower total carrying cost B. Lower total order cost and higher total carrying cost C. Higher total order cost and higher total carrying cost D. Lower total order cost and lower total carrying cost

B. Lower total order cost and higher total carrying cost

56. Which of the following is not true about backflush costing? A. Different companies may choose different trigger points. B. Production costs are attached to products as they move through work in process. C. A single account is used for raw and in-process materials because materials are issued to production when received from the supplier. D. Direct labor is usually insignificant in a highly automated system, so is not cost effective to account for it separately.

B. Production costs are attached to products as they move through work in process.

4. Marley Company hired a consultant to help improve its operations. The consultant's report stated that Marley's inventory levels are excessive and cited several negative consequences to Marley as a result. Which of the following was not cited in the report? A. Possible other uses for working capital now tied up in inventory B. Production stoppages due to parts not being available C. Higher property taxes and insurance costs D. Large quantities of obsolete materials

B. Production stoppages due to parts not being available

8. 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.

B. Storeroom keeper's wages.

42. At the end of the period, the balance in the Materials account should represent A. the cost of materials purchased. B. the cost of materials on hand. C. the cost of materials issued into production. D. the cost of materials included in Work in Process and Finished Goods.

B. the cost of materials on hand.

11. 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

C. $ .34

9. 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.

C. $12,600.

38. 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. 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 (rounded to three decimal places): A. $3.438. B. $3.167. C. $3.386. D. $2.875.

C. $3.386.

28. 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. 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.

C. 150 units @ $1.62 and 50 units @ $1.55.

21. 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

C. 2, 4, 1, 3

34. Pierce, Inc. uses sulfuric acid in a manufacturing process. Information as to balances on hand, purchases, and requisitions of acid is given in the following table. If a perpetual inventory record of Raw Material A is maintained on a LIFO basis, the 20,000 units in inventory at July 18 will consist of: A. 5,000 units @ $.72 and 15,000 units @ $.65. B. 10,000 units @ $.50 and 10,000 units @ $.65. C. 2,000 units @ $.72, 8,000 units @ $.65 and 10,000 units @ $.50. D. 10,000 units @ $.50, 6,000 units @ $.65 and 4,000 units @ $.72.

C. 2,000 units @ $.72, 8,000 units @ $.65 and 10,000 units @ $.50.

12. The following data pertains to Western 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 Western Company's EOQ? A. 4,000 pounds B. 800 pounds C. 400 pounds D. 200 pounds

C. 400 pounds

32. Filmac, Inc. uses speakers when assembling computers. Information as to balances on hand, purchases, and requisitions of speakers is given in the following table. If a perpetual inventory record of speakers is maintained on a LIFO basis, the March 8 issue will consist of: A. 20 units @ $14.00 and 50 units @ $16.00. B. 70 units @ $14.00. C. 50 units @ $16.00 and 20 units @ $14.00. D. 70 units @ $16.00.

C. 50 units @ $16.00 and 20 units @ $14.00.

15. 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.

C. Cost accountant.

57. Under a backflush accounting system, the following entry is made when products are completed: A. Debit-Finished Goods Credit-Work In Process B. Debit-Cost of Goods Sold Credit-Raw and In Process Credit-Conversion Costs C. Debit-Finished Goods Credit-Raw and In Process Credit-Conversion Costs D. Debit-Cost of Goods Sold Credit-Finished Goods

C. Debit-Finished Goods Credit-Raw and In Process Credit-Conversion Costs

46. Inventory levels for firms using JIT inventory systems compared to firms not using JIT will be: A. Higher for both work in process and finished goods. B. Higher for work in process and finished goods but lower for raw materials. C. Lower for raw materials, work in process, and finished goods. D. Higher for finished goods but lower for raw materials and work in process.

C. Lower for raw materials, work in process, and finished goods.

51. Taft Company produces 5,000 pallets each day. The average number of units in work in process is 10,000, having an average cost of $35,000. The annual carrying costs related to inventory are 20%. Consultants have determined that the work in process could be reduced by as much as 25% by rearranging the factory floor. What would the throughput time be if Harrison implements the recommended changes? A. Twelve hours B. One day C. One and one-half days D. Two days

C. One and one-half days

19. 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.

C. Purchase order.

20. 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.

C. The customer.

7. 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

C. To minimize the total order costs and carrying costs over a period of time

50. 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? A. Twelve hours B. One day C. Two days D. Three days

C. Two days

17. Sam Jones works at Seeker, Inc. Sam's duties include identifying where materials can be obtained most economically, placing orders and verifying invoices and approving them for payment. Sam is a(n): A. receiving clerk. B. accounts payable clerk. C. purchasing agent. D. production supervisor.

C. purchasing agent.

41. When selecting a method of inventory costing, a company must consider all of the following except: A. federal and state income tax regulations. B. current economic conditions. C. the flow of materials. D. its rate of inventory turnover.

C. the flow of materials.

6. Murphy Company uses 2,000 yards of material each day to make hats. It usually takes five days from the time Murphy orders the material to when it is received. If Murphy's desired safety stock is 6,000 yards, what is Murphy's order point? A. 6,000 yards B. 8,000 yards C. 10,000 yards D. 16,000 yards

D. 16,000 yards

22. Listed below are steps of procuring materials for production: 1. The receiving clerk checks the quantity and quality of incoming materials. 2. The purchasing agent issue the purchase order to the vendor. 3. The production floor supervisor issues a materials requisition. 4. The storeroom clerk issues a purchase requisition. In which order would these events typically happen? A. 3, 2, 4, 1 B. 3, 4, 2, 1 C. 2, 1, 3, 4 D. 4, 2, 1, 3

D. 4, 2, 1, 3

13. 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. Assuming the company does not maintain safety stock, the average inventory is: A. 10,000 units. B. 7,500 units. C. 15,000 units. D. 6,000 units.

D. 6,000 units

27. The Benchley Company uses metal grates when assembling appliances. Information as to balances on hand, purchases, and requisitions of the grates is given in the following table. If a perpetual inventory record of the metal grates is maintained on a FIFO basis, the September 6 issue will consist of: A. 15 units @ $2.80, 120 units @ $3.10 and 30 units @ $3.24. B. 75 units @ $2.80 and 90 units @ $3.10. C. 165 units @ $3.10. D. 75 units @ $3.10 and 90 units @ $3.24.

D. 75 units @ $3.10 and 90 units @ $3.24.

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.

D. All of these are correct.

45. 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

D. Debit - Factory Overhead Credit - Materials

44. 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

D. Debit - Materials Credit - Work in Process

43. 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

D. Debit-Materials Credit-Accounts Payable

55. In a backflush accounting system, a single account is used for the following: A. Work in process and finished goods inventories. B. Finished goods inventories and cost of goods sold. C. Factory overhead and raw materials. D. Labor and overhead.

D. Labor and overhead.

49. Polk, Inc. produces 3,000 hammers each day. The average number of units in work in process is 4,500, having an average cost of $10,000. The annual carrying costs relating to inventory are 15%. Consultants have determined that the work in process could be reduced by as much as a third by rearranging the factory floor. What is the current throughput time? A. Eight hours B. Sixteen hours C. One day D. One and one half days

D. One and one half days

18. 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.

D. Purchase requisition.

54. In a backflush accounting system, a single account is used for the following: A. Work in process and finished goods inventories. B. Finished goods inventories and cost of goods sold. C. Factory overhead and raw materials. D. Raw materials and work in process inventories.

D. Raw materials and work in process inventories.

47. Just-in-time production techniques: A. Require inventory buffers between work centers. B. Were first utilized by U.S. manufacturers and later exported to Japan. C. Produce goods for inventory with the hope that demand for these goods will then be created. D. Require a high degree of cooperation and coordination between supplier and manufacturer.

D. Require a high degree of cooperation and coordination between supplier and manufacturer.

3. Janet is the purchasing agent at Frameco Manufacturing. Her duties include vendor selection and ordering materials. Due to a recent economic downturn and resulting cut backs, Janet has been assigned the additional duty or preparing receiving reports after comparing the goods received to the purchase order. This is an example of: A. unlimited access to materials. B. independence of assigned functions. C. misappropriation of assets. D. a lack of segregation of duties.

D. a lack of segregation of duties.

48. In a JIT system, reducing throughput time is possible because: A. there are fewer materials used in the process. B. there are more workers involved in the process. C. there are more supervisors, so a better job is done of directing plant activities. D. there are fewer operations such as moving and storing inventories that do not add value to the product.

D. there are fewer operations such as moving and storing inventories that do not add value to the product.