ACTIVITY 6 – ACCOUNTING FOR MATERIALS

Problem 1
The following data about Maxwell Company is given for the month of August.
August 1Inventory 800 units at P10
12 Purchase 1,000 units at P12 20 Issue 500 units
14 Purchase 500 units at P11.50 25 Purchase 400 units at P14
16 Issue 800 units 28 Issue 800 units
18 Purchase 600 units at P15

Required:
1. Using FIFO method of costing materials, how much is the cost of ending inventory for August?
2. How much is the cost of materials issued or used for production?
3. How much is the total goods available for sale?

PROBLEM 2
Using the data in problem 1 above and using weighted average, compute for
a. Weighted average unit cost
b. Cost of ending inventory
c. Cost of materials issued
1. Using Moving average method, compute for
a. Cost of ending inventory
b. Cost of materials issued

PROBLEM 3
Use both FIFO and WEIGHTED AVE in computing the required balances:

June 1 Balance 800 @ P4.00

June 3 Issued 50
June 5 Purchased 300 @ P4.50
June 6 Issued 250
June 15 Issued 400
June 18 Purchased 300 @ P5.00
June 25 Issued 100

1. Using FIFO method compute for the cost of

a. Inventory Value
b. Materials Issued
2. Using average method compute for the cost of
a. Inventory Value
b. Materials Issued

PROBLEM 4
The following information pertains to CACHING Corporation’s Material X:

Annual Usage 25,200 units

Working days per year 360 days
Normal lead time in working days 30 days
Safety Stock 1,050 units

The maximum lead time in working days and the reorder point for Material X are
PROBLEM 5
Using the EOQ Model, Tokyo Company computed the economic order quantity for one of the materials it uses in its
production to be 4,000 units. The Company maintains safety stock of 300 units. The quarterly demand for the
material is 10,000 units. The order cost is 200 per order. The purchase price of the material is P4. The annual
Inventory carrying cost is equal to 25% of the purchase price.

1) What is the annual inventory carrying cost?

2) The total inventory order cost per year is

PROBLEM 6

The following information pertains to AAA Manufacturing Company’s Product X:

Annual Demand 33,750 units

Annual cost to hold one unit of inventory P15

Setup cost (or the cost to initiate a production run P500

Beginning inventory of Product X 0

At present, the company produces 2,250 units of Product X per production run, for a total of 15 production runs per
year. The Company is considering to use the EOQ model to determine the economic lot size and the number of
production runs that will minimize the total inventory carrying cost and setup cost for Product X.

1) At present, the company’s total annual inventory costs is

2) If the EOQ model is used, the economic lot size is
3) If the EOQ model is used, the number of production runs should be
4) If the EOQ model is used, the total annual inventory costs, compared with that under present system, will
increase (decrease) by