AE 103

Accounting for Materials

Problem 1
Splash Company is selling beauty products. It uses EOQ decision model to make inventory decisions. It is now considering
inventory decisions for its facial set product line. Data for 2022 are:
 Expected annual demand 10,000
 Ordering costs for purchase order P2,000
 Carrying cost per facial set P 250

The purchasing lead time is 3 days. Splash Company is open 300 days a year and maintaining 50 units stock all the time.
1. What is the EOQ?
a. 5 c. 400
b. 89 d. 2,000
2. What is the number of orders that will be placed each year?
a. 2.5 c. 40
b. 25 d. 400
3. What is the re-order point?
a. 83 c. 150
b. 100 d. 200

Problem 2
The following information pertains to Material X used by Zernan Company

Annual usage 20,000

Working days per year 250
Safety stock in units 800
Normal lead time in working days 30

If units of Material X will be required evenly throughout the year, the re-order point is
a. 800. c. 2,400.
b. 1,600. d. 3,200.

Problem 3

A delivery for Softdrinks Trading is accompanied by an invoice indicating the following:

Description Weight Unit Cost Amount

Coks 900 kgs. P5 P 4,500
Peps 1,200 kgs. 4.50 5,400
Sprts 1,500 kgs. 4.20 6,300
Subtotal 16,200
Freight charge 4,000
Total 20,200

Required:
1. How much is the adjusted total material cost of Coks if freight-in is to be added to the cost of materials purchased and
allocated based on Relative peso value method?

a. 4,500.00 c. 6,733.33
b. 5,611.11 d. 5,833.33

2. How much is the adjusted total material unit cost of Coks if freight-in is to be added to the cost of materials purchased and
allocated based on Relative weight method?
a. 6.23 c. 5.611
b. 6.11 d. 6.48

3. Materials are purchased at a list price of P200,000 subject to the terms of 15, 5, 3/10, n/30. The materials purchased should
be recorded at what amount?
a. 200,000 b. 161,500
 c. 156,655 d. 194,000
Problem 4

Un-Unnoy Co had the following materials purchases and issues for a specific inventory item:
Balance on hand, August 1 700 units @ P10
300 units @ P11
Purchases:
August 3 1,200 units @ P12
August 22 1,000 units @ P14
August 25 excess materials from Aug. 14 issues 120 units
Issues to production:
August 14 800 units
August 16 returns to vendor from Aug. 3 purchase 200 units
August 20 600 units

Required:
Compute the cost of materials used for the month, and the cost assigned to the August 31 inventory under each of the following
perpetual inventory costing methods:
a. First in, first out b. Moving average
Problem 5
The following information was available from the inventory records of the Gadong Company for January 2022:
Unit Total
Units Cost Cost
Balance at January 1, 200X 2,000 9.775 19,550
Purchases:
January 6, 200X 1,500 10.300 15,450
January 26, 200X 3,400 10.750 36,550
Sales:
January 7, 200X 1,800
January 31, 200X 3,200
Balance at January 31, 200X 1,900
Assuming that Gadong maintains perpetual inventory records, what should be the inventory at January 31, 200X, using the
average cost inventory method rounded to the nearest peso?
a. 19,998
b. 19,523
c. 19,703
d. 19,950

Problem 6

Year 1 Year 2 Year 3 Year 4

Inventory at cost 100,000 100,000 120,000 125,000

Inventory at NRV 80,000 95,000 125,000 140,000

Required: Record any adjustment for the inventory in each year.