Cost Accounting (Planning, Controlling and Costing), Exams of Mathematics

Download Cost Accounting (Planning, Controlling and Costing) and more Exams Mathematics in PDF only on Docsity! Chapter 9 MATERIALS: CONTROLLING, COSTING, AND PLANNING MULTIPLE CHOICE Question Nos. 23-27, 30, 31, and 38-40 are AICPA adapted. Question No. 22 is CIA adapted. A 1. The cycle of materials procurement and use includes all of the following steps except for: determining the cost of goods sold the production budget preparing the receiving report maintaining the materials ledger engineering to determine materials specifications roopD> E 2. In a well-controlled materials system, the Purchasing Department performs all of the following activities except the: A. _ placing of purchase orders with suppliers receiving of purchase requisitions maintaining of information on market prices for goods used preparation of purchase orders approving and checking of invoices poop B 3. The purchase requisition is a document used to: initiate the return of merchandise to the vendor inform the purchasing agent of a need for a materials item initiate payment for merchandise received inform the Purchasing Department of a receipt of goods authorize the vendor to supply merchandise or materials > a poop he expense that theoretically is not a correct part of inventory cost is: freight-in freight-out inspection costs accounting costs for materials received purchasing costs heoretically, cash discounts permitted on purchased raw materials should be: added to other income, whether taken or not added to other income, only if taken deducted from inventory, whether taken or not deducted from inventory, only if taken none of the above a a POOR>H mpom> 116 117 E 6. Cc 7. A 8. D 9. D~= 10. Cc i. B 122 Chapter 9 The materials requisition: roopD> is the list of materials requirements for each step in the production sequence informs the purchasing agent of the quantity and kind of materials needed contracts for quantities to be delivered certifies quantities received and reports results of inspection and testing authorizes the storeroom to deliver types and quantities of materials to a given department The purchase order: roopD> is the list of materials requirements for each step in the production sequence informs the purchasing agent of the quantity and kind of materials needed contracts for quantities to be delivered certifies quantities received and reports results of inspection and testing authorizes the storeroom to deliver types and quantities of materials to a given department The bill of materials: roopD> is the list of materials requirements for each step in the production sequence informs the purchasing agent of the quantity and kind of materials needed contracts for quantities to be delivered certifies quantities received and reports results of inspection and testing authorizes the storeroom to deliver types and quantities of materials to a given department The receiving report: roopD> is the list of materials requirements for each step in the production sequence informs the purchasing agent of the quantity and kind of materials needed contracts for quantities to be delivered certifies quantities received and reports results of inspection and testing authorizes the storeroom to deliver types and quantities of materials to a given department ane purchasing department performs all of the following functions except: mDORD receives purchase requisitions for materials, supplies, and equipment keeps informed concerning sources of supply, prices, and delivery schedules prepares and places purchase orders compares quantities received with the suppliers' packing list arranges for the reporting among the purchasing, receiving, and accounting departments The purchase requisition may originate with all of the following except: Sopp m a storeroom employee a materials record clerk a receiving department clerk a research, engineering, or other department employee who needs materials of a special nature a computer The receiving department does all of the following except: roopD> unloads and unpacks incoming materials keeps informed concerning sources of supply, prices, and delivery schedules matches materials received with descriptions on purchase orders arranges for inspection, when necessary routes accepted materials to the appropriate departments Materials: Controlling, Costing, and Planning 120 B 23. 24. 25. 26. Brad Company has correctly computed its economic order quantity as 500 units. However, management would rather order in quantities of 600 units. How will Brad's total annual purchase 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 purchase order cost and lower carrying cost B. lower purchase order cost and higher carrying cost Cc. higher purchase order cost and higher carrying cost D. lower purchase order cost and lower carrying cost E. none of the above Carter Company buys a certain part for its manufacturing process for $20 a part and needs 10,000 parts a year. It costs $3 a year to carry one of these parts in inventory. The cost of placing a purchase order for these parts is $15. Assuming that the parts will be required 2 __10,000 _15 3 A. 10,000 __ 3 15 10,000 __15 3 Cc. 2 _10,000_ 3 15 D. E. none of the above evenly throughout the year, the formula for the economic order quantity is the square root of: For its economic order quantity model, a company has a $10 cost of placing an order and a $2 annual cost of carrying one unit in stock. If the cost of placing an order increases by 20%, the annual cost of carrying one unit in stock increases by 25%, and all other consider ations remain constant, the economic order quantity will: decrease increase remain unchanged either increase or decrease, depending on the reorder point either increase or decrease, depending on the safety stock roopD> For inventory management, ignoring safety stocks, a valid computation of the reorder point is: order costs plus carrying costs the square root of the anticipated demand during lead time the anticipated demand per day during lead time times lead time in days the economic order quantity the economic order quantity times the anticipated demand during lead time roopD> 121 27. 28. Chapter 9 The Cappalari 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... Carrying cost of safety stock. Number of purchase orders. $ 80 per occurrence $ 2 per unit 5 per year The options available to Cappalari are as follows: Units of Probability of Running Safety Stock out of Safety Stock 10 50% 30 30% 50 10% 55 5% The number of units of safety stock that will result in the lowest cost is: A. 30 B. 50 Cc. 55 D. 10 E. none of the above SUPPORTING CALCULATION: Safety Expected Stockout Carrying Stockout and Stock Stockouts Cost Cost Carrying Cost 10 25 $200 $ 20 $220 30 1.5 120 60 180 50 5 40 100 140 55 25 20 110 130 The following information is available for Odyssey Company's Material Y: Annual usage in unit: 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 Y will be required evenly throughout the year, the order point would be: 2,000 2,800 2,105 1,200 1,600 roopD> SUPPORTING CALCULATION: [(10,000 = 250) x 30] + [(70 - 30) x 40] 30 (10,000 = 250) + 40 (70 - 30) = 2,800 Materials: Controlling, Costing, and Planning A 29. 30. The following information relates to Hudson Company's Material A: Annual usage in unit: Working days per year. Normal lead time in working days. Maximum lead time in working days. 122 Assuming that the units of Material A 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 Cc. 600 1,350 D. 750 600 E none of the above SUPPORTING CALCULATION: Safety Stock: (7,200 = 240) (45 - 20) = 750 Order Point: 20 (7,200 = 240) + 750 = 1,350 Penguin Company manufactures winter jackets. Setup costs are $2.00. Penguin manufactures 4,000 jackets evenly throughout the year. Using the economic order quantity approach, the optimal production run would be 200 when the cost of carrying one jacket in inventory for one year is: $0.10 $0.20 $0.40 $0.05 none of the above roopD> SUPPORTING CALCULATION: 125 40. 41. Chapter 9 The following information was available from the inventory records of the Anthony Company for January 19X7: Balance at January 1, 19X7.... Purchases: January 6, 19X7. January 26, 19X7.... Sales: January 7, 19X7.. January 31, 19X7. Balance at January 31, 19X7.. 1,500 3,400 1,800 3,200 1,900 Unit Cost $ 9.775 10.300 10.750 Total Cost $19,550 15,450 36,550 Assuming that Anthony does not maintain perpetual inventory records, what should be the inventory at January 31, 19X7, using the average cost inventory method rounded to the nearest dollar? $19,950 $19,998 $19,523 $19,702 none of the above roopD> SUPPORTING CALCULATION: $71,550 _ 1,900 = $19,702 6,900 In a period of rising prices, using which of the following inventory cost flow methods would result in the highest ending inventory? fifo average cost weighted average cost moving average cost lifo roop> The inventory cost flow method that involves computations based on broad inventory pools of similar items is: dollar-value lifo average cost moving average fifo regular quantity of goods lifo roopD> Materials: Controlling, Costing, and Planning 126 PROBLEMS PROBLEM 1. Applied Acquisition Costs. James Company Inc. records incoming materials at invoice price less cash discounts plus applied receiving and handling cost. For product Beta, the following data are available: Budgeted for Actual Cost the Month for the Month Freight-in and cartage-in.. $ 3,800 $ 3,750 Purchasing Department cost 7,150 7,075 Receiving Department cost 5,825 5,850 Storage and handling... 6,130 6,100 Testing, spoilage, and reject: 3,345 3,850 $_ 26,250 $26,625 The purchasing budget shows estimated net purchases of $175,000 for the month. Actual invoices net of discounts total $173,500 for the month. Required: (1) Determine the applied acquisition costing rate for the month. (2) Determine the amount of applied cost added to materials purchased during the month. (3) Indicate the amount of and the possible disposition of the variance. SOLUTION Budgeted acquisition cost __ $26,250 Budgeted purchases $175,000 q@ (2) $173,500 net purchases x 15% applied acquisition costing rate = 26,025 applied cost added to materials purchased during the month (3) The underapplied acquisition cost of $600 (26,625 actual cost - 26,025 applied cost) should be debited to Cost of Goods Sold or prorated to Cost of Goods Sold and inventories. =15% applied acquisition costing rate for the month 127 Chapter 9 PROBLEM 2. Determination of Optimal Order Quantity. Micro Corp. uses 1,000 units of Chip annually in its production. Order costs consist of $10 for placing a long-distance call to make the order and $40 for delivering the order by truck to the company warehouse. Each Chip costs $100, and the carrying costs are estimated at 15.625% of the inventory cost. Required: (1) Compute the economic order quantity for Chip and the total order costs and carrying costs for the year. (2) Determine the best order quantity if Chip is purchased only in multiples of 25 units. (Round answers to the nearest whole dollar.) SOLUTION 2_RU_CO 1 EOQ = square root { —=———=—_ a) Q=sq 4 cute 4 2_ 1,000 _ $50 = square root f —=———_=——_ $100 _ .15625 = square root 6,400 =80 RU_CO _ 1,000 _ $50 $50 _ $625 order cost EOQ 80 EOQ_CU_CC= _80_ $100 _ .15625 = $625 carry ingcost (2) The best order quantity is 75. By process of elimination, try both 75 units and 100 units: RU _CO _ 1,000 _ $50 75 75 = $667 order cost SEOQ x CU x CC =Sx 75x $100 x .15625 = 586 carrying cost $_1,253 total cost Additional computations: Order quantity at 100: Order cost. $ 500 Materials: Controlling, Costing, and Planning EOQ = square root | 2=RU—CO CU _CC% 1,000 = square root j2— Oh $1 1,000 = square root ($50,000 _ CO) 1,000,000 = $50,000 _ CO CO = $20 PROBLEM 4, 130 Cost Saving by Use of EOQ. Warner Co. uses 6,000 units of material per year at a cost of $4 per unit. Carrying costs are estimated to be $1.125 per unit per year, and order costs amount to $60 per order. As an incentive to its customers, Warner will extend quantity discounts according to the following schedule: Minimum List Net Order Price Discount Price 500 $4 2% $3.92 1,000 4 4 3.84 2,000 4 6 3.76 Required: (1) Determine the economic order quantity (ignoring quantity discounts) and the total annual order cost, carrying cost, and materials costs at EOQ (considering quantity discounts). (2) Compute the annual order cost, carrying cost, materials cost, and total cost at each discount level. (Round to the nearest dollar.) (3) Identify the order size, choosing from one of the three discount levels, that will minimize the total cost. SOLUTION 2 __6,000_ $60 ‘1 EOQ= yt SS @ Q = square roo | $1.125 j Order cost + Carrying cost + Materials cost = Total cost = 800 units per order (6,000/800 x $60) + (800/2 x $1.125) + (6,000 x $3.92) = $450 + $450 + $23,520 = $24,420 (2) Size of order. Number of orders per year.. Aver age inventor: Order cost... Carrying cost ($1.125 per unit).. Materials cost: 1,000 2,000 6 3 500 1,000 $ 360 $ 180 563 1,125 131 Chapter 9 6,000 x $3.92.. 6,000 x $3.84.. 6,000 x $3.76. Total cost 23,520 23,040 22,560 $ 24,521 $23,963 $23,865 (3) The order size that will minimize the total cost is 2,000 units. Materials: Controlling, Costing, and Planning 132 PROBLEM 5. Determination of Optimal Size of a Production Run. Georgia Corp. produces fireworks in various forms. A cardboard tube, Part No. A86-E, is manufactured rather than ordered from an outside supplier. The company estimates that its need each year for this tube is 4,800 gross and that variable manufacturing costs are $60 per gross. Setup costs amount to $162 per production run, and storage costs are equal to 5% of variable manufacturing costs. Required: (1) Determine the optimal size of a production run and the total annual setup cost and total carrying cost at that size. (2) Determine the optimal size of a production run, the total annual setup cost, and the total carrying cost, assuming that storage space is limited to 400 units. SOLUTION ‘rotal annualsetup cost plustotal = Pl 4 carry Ingcost 4.800 > +4 Z2e ses sSe- 4 — S162 +H75°H cco _ see) = $1,080 + $1,080 = $2,160 (2) The optimal size would have to be 400 units because total costs at any lot size below 400 units are greater. Costs at this size are: