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CHAPTER 2 MULTIPLE CHOICE COMPUTATIONAL -

COST ACC GUERRERO 2018 ED.
Bs accountancy (Rizal Technological University)

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CHAPTER 2 MULTIPLE CHOICE- 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 materials cost.

For an entire year, the inventory carrying costs and order costs
are:
a. P1,500
b. P2,000
c. P500
d. 1,000

10,000 X P500 + P1 x .20 x 10,000 = P1,500

10,000 2

2. There are 1,000 trolls in stock, and 1,500 are due in from orders
that are 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
safety stock quantity must be equal to:
a. 500 units
b. 1,000 units
c. 2,500 units
d. 100 units

1,000 + 1,500 = (100 X 20) + SSQ

SSQ = 500 units

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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 nit of XT in stock is P5.

What is the EOQ for the XT Transistor?

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

EOQ = √

=√

=√

EOQ = 721

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)

5,200 / 721 = 7.2

5. Basketball Inc, operated a megastore featuring sports

merchandise. It uses EOQ decision model to make inventory
decisions. It is now considering inventory decisions for its PBA’s

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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 purchasing lead time is 7 days. Basketball, Inc is open 365 days a
year.

What is the EOQ?

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

EOQ = √

=√

=√

= 670.82

EOQ = 671

6. Using the data in No. 5, what is the number of order that will be
placed each year?
a. 15 orders
b. 20 orders
c. 25 orders
d. 30 orders

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Number of orders per year

D/EOQ = 10,000/ 671

= 14.90

= 15 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

Demand each = D e
Working day Number of Working Days

= 10,000
365
= 27. 39 or 27.40 jerseys per day

Reorder point = 27.40 x 7 = 191.8

= 191.80 or 192 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 (round to the nearest unit):
a. 500
b. 250
c. 100
d. 625

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=√

=√

=√

= 500

9. The following 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

[(10,000 /250) x 30 ] + [(70-30) x 40]

30 (10,000 / 250) + 40 (70-30)

30 (40) + 40 (40)

1,200 + 1,600

= 2,800

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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 nits.
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

(1,400 – 600) + 2,000

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800 + 2,000
=2,800 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 forgone from alternative 800
Investment of funds
 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

P.12 + P.10 + P800 =?

10,000
P.12 + P.10 + 0.08 =?
0.22 + 0.08 =0.30

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:

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Safety Stock Order Point

a. 750 1,350
b. 600 750
c. 600 350
d. 750 600

SS = (7,200 / 240) X (45-20) = 750

OP= 20 (7,200 / 240) + 750 = 1,350

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

EOQ = √

=√

=√

=√
= 80

15. Using the date in No. 14, what is the total order cost?
a. P625
b. P550

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c. P525
d. P650

Order Cost = RU X CO
EOQ
=1,000 x P50
80
= 50,000
80
= P625

16. Using the data in No. 14, what is the carrying cost for the
year?
a. P625
b. P650
c. P550
d. P525

CC = ½ x EOQ x CU x CC
= ½ x 80 x P100 x .15625
= 40 x 15.625
= P625

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

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 Lead time 7 working days

What is the reorder point?

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

Safety Stock + (Average daily use x Lead Time )

140 + (100 x 7 days) = 840 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

140 + (1,000 / 2) = 640 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

140 + 1,000 = 1,140 liters

20. Using the date in No. 17, what is the cost of placing one
order?
a. P20
b. P25

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c. P30
d. P35

1,000 = √

1,000 = √

1,000 =√

1,000,000 = P50,000 x CO
50,000 50,000
CO = P20

21. The cloth Center, Inc. buys and sells fabrics to a wide
range of industrial and consumer users. One of the products it
carries is denim cloth, used in the manufacture of jeans and
carrying bags. The supplier for the denim cloth pays all
incoming freight. No incoming inspection of the denim is
necessary because the supplier has a track record of delivering
high-quality merchandise. The purchasing officer of the Cloth
Center, Inc. has collected the following information:
 Annual Demand for denim cloth 20,000 yards
 Ordering costs per purchase order P160
 Carrying costs per year 205 purchase costs
 Safety stock requirements None
 Cost of denim Cloth P8 per year
The purchasing lead time is 2 weeks. The Cloth center is open
250 days a year (50weeks for 5 days a week)

What is the EOQ for denim cloth?

a. 2,000 yards

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b. 2,200 yards
c. 1,500 yards
d. 2,500 yards

EOQ = √

=√

=√
= 2,000 yards

22. Using the data in No. 21, what is the number of orders that
will be placed each year?
a. 10 orders
b. 12 orders
c. 15 orders
d. 20 orders

Number of orders per year

D/EDQ = 20,000/ 2,000 yards

= 10 orders

23. Using the data in No. 21, what is the reorder point for
denim cloth?
a. 800 yards
b. 400 yards
c. 500 yards
d. 700 yards

Demand each = D e
Working day Number of Working Days

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= 20,000
250
= 80
Reorder point = Daily Usage X Lead Time + Safety Stock
= 80 x 10 + 0
= 800 yards

LINDSAY ANNEMARIE N. FERRER PCBET-01-301P COST ACCOUNTING

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