ACCOUNTING FOR MATERIAL

Question 1

The basic objective of cost accounting

Answer 1

COST CONTROL

Question 2

is the biggest or the highest proportion of the total cost of production

Answer 2

material element

Question 3

is a substance (Physics term) that forms part of or composed of a finished product.

Answer 3

Material

Question 4

refers to the commodities supplied to an undertaking for the purpose of consumption in the process of manufacturing or of rendering service or for transformation into products.

Answer 4

material

Question 5

refers to all commodities consumed in the process of manufacturing.

Answer 5

‘material’

Question 6

: one or more items, matters or substances that are either physically transformed into a usable product or that become part or component of that product.

Answer 6

Direct material

Question 6

2 TYPES OF MATERIAL

Answer 6

1. DIRECT MATERIAL
2. INDIRECT MATERIAL

Question 7

: One or more items, matters or substances that are essential to carry out a production or manufacturing process, but they don’t physically become the part of product or a component of it.

Answer 7

Indirect material

Question 8

It can’t be easily and conveniently traced, linked or associated to a unit of product or a job order.

Answer 8

Indirect material

Question 9

The cost of such materials is directly traceable to each individual unit of product manufactured.

Answer 9

direct material

Question 10

is the cost of materials used to manufacture a product or provide a service

Answer 10

Material cost

Question 11

According to CIMA of UK, material cost is

Answer 11

“the cost of commodities supplied to an undertaking.”

Question 12

is the significant constituent of the total cost of any product.

Answer 12

Material cost

Question 13

is a systematic control over purchasing, storing and consumption of materials, so as to maintain a regular and timely supply of materials, at the same time, avoiding overstocking

Answer 13

Material control

Question 14

It is also defined “providing the right quantity of material of the right quality at the right time and place at the minimum cost”.

Answer 14

MATERIAL CONTROL

Question 15

Objectives of Material Control

Answer 15

1. To enable uninterrupted production
2. To ensure requisite quality of materials
3. To minimize wastage
4. To fix responsibility
5. To provide information

Question 16

: Ensure smooth and unrestricted production to avoid substantial loss to a concern due to production stoppage.

Answer 16

To enable uninterrupted production

Question 17

: introducing an efficient materials control system to minimize loss.

Answer 17

To minimize wastage

Question 18

: Exercise strict control and supervision over the purchases, storage and handling of materials for the better quality.

Answer 18

To ensure requisite quality of materials

Question 19

: aims at fixing responsibility of operating units and individuals connected with the purchase, storage and handling of materials.

Answer 19

To fix responsibility

Question 20

: provide accurate information regarding material cost and inventory

Answer 20

To provide information

Question 21

Techniques of material Control

Answer 21

• ABC Technique
• VED Analysis
• Inventory Levels
• Economic Order Quantity (EOQ)

Question 22

will have a significant impact on overall inventory cost, while also providing a mechanism for identifying different categories of stock that will require different management and controls.

Answer 22

ABC ANALYSIS

Question 23

“A items” ?

Answer 23

very tight control and accurate records, (VERY IMPORTANT)

Question 24

"B items"

Answer 24

with less tightly controlled and good records, (IMPORTANT)

Question 25

C items" ?

Answer 25

with the simplest controls possible and minimal records.

Question 26

' – 20% of the items accounts for 70% of the annual consumption value of the items

Answer 26

A' items (Very important)

Question 27

– 30% of the items accounts for 25% of the annual consumption value of the items

Answer 27

'B' items (Important)

Question 28

– 50% of the items accounts for 5% of the annual consumption value of the items

Answer 28

'C' items (marginally important)

Question 29

. It categorizes stock under three heads based on its importance and necessity for an organization for production or any of its other activities.

Answer 29

VED ANALYSIS

Question 30

VED analysis stands for

Answer 30

Vital, Essential, and Desirable.

Question 31

includes inventory, which is necessary for production or any other process in an organization. The shortage of items under this category can severely hamper or disrupt the proper functioning of operations.

Answer 31

VITAL CATEGORY -

Question 32

These, too, are very important for any organization because they may lead to a stoppage of production or hamper some other process.

Answer 32

ESSENTIAL CATEGORY

Question 33

of inventory is the least important among the three, and their unavailability may result in minor stoppages in production or other processes

Answer 33

desirable category

Question 34

Inventory Levels

Answer 34

- MINIMUL LEVEL - MAXIMUM LEVEL - DANGER LEVEL - RE-ORDERING LEVEL

Question 35

: the quantity which must always be maintained in hand.

Answer 35

Minimum Level

Question 36

: It is the quantity of materials beyond which a firm should not exceed its stocks.

Answer 36

Maximum Level

Question 37

: It is the level below which stocks should not fall in any case

Answer 37

Danger Level

Question 38

: When the quantity of materials reaches a certain level then fresh order is sent to procure materials again. is fixed between minimum level and maximum level.

Answer 38

Re-ordering Level

Question 39

If stocks are less than the minimum level, then

Answer 39

the work will stop due to shortage of materials

Question 40

If the quantity exceeds maximum level limit, then

Answer 40

it will be termed as overstocking.

Question 41

If danger level approaches, then

Answer 41

immediate steps should be taken to replenish the stocks.

Question 41

is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs.

Answer 41

Economic order quantity (EOQ)

Question 42

This production-scheduling model was developed in

Answer 42

1913 by Ford W. Harris

Question 43

The goal of the EOQ formula is to

Answer 43

identify the optimal number of product units to order.

Question 44

Economic Order Quantity Formula Where: D = Yearly unit demand S = Ordering cost per purchase H = Annual carrying cost per unit

Answer 44

√ (2DS / H)

Question 45

Steps in Material Control

Answer 45

- Purchase Requisition - Selection of Suppliers - Purchase Order and Follow-Up - Receipt of Materials - Inspection and Testing of Materials - Return of Rejected Materials - Passing Invoices for Payment

Question 46

. It is a formal request by the head of the department or other authorities to the purchase manager to purchase the specified materials.

Answer 46

Purchase Requisition:

Question 47

Purchases of materials are initiated through

Answer 47

purchase requisitions

Question 48

: When the purchasing department receives a duly authoriZed purchase requisition, a source of supply has to be selected.

Answer 48

Selection of Suppliers

Question 49

The purchase department generally maintains a list of suppliers for each type of material and selects a particular supplier after inviting tenders.

Answer 49

Selection of Suppliers

Question 50

is the form used by purchasing department authorising the suppliers to supply the specified materials at a price and terms stated therein.

Answer 50

Purchase Order and Follow-Up

Question 51

: All incoming material should be received by the receiving department.

Answer 51

Receipt of Materials

Question 52

This department performs the functions of unpacking the goods received and verify their quantities and conditions

Answer 52

receiving department.

Question 53

: Goods received should be inspected for quantity to ensure that they comply with specifications stated on the purchase order. Where technical or laboratory inspection is necessary, the goods are passed to laboratory which will provide a report on the quality of goods.

Answer 53

Inspection and Testing of Materials

Question 54

: Where materials received are damaged or are not in accordance with the specifications, these are usually returned to the supplier along with a debit note

Answer 54

Return of Rejected Materials

Question 55

Methods of Pricing Material Issues

Answer 55

1. First in First Out Method 2. Last in First Out Method 3. Simple Average Cost Method 4.Weighted Average Cost Method

Question 55

are numbered serially and entered in the invoice register.

Answer 55

Invoices

Question 56

When the invoices are received by the purchasing department, the process of assembling the business paper concerned with each purchase and preparation of vouchers begins.

Answer 56

Passing Invoices for Payment:

Question 57

: A method of pricing the issue of material using, the purchase price of the oldest unit in the stock.

Answer 57

First In First Out Method (FIFO)

Question 58

Under this method most recent purchase will be the first to be issued.

Answer 58

Last In First Out Method (LIFO)

Question 59

Under this method all the materials received are merged into existing stock of materials, their identity being lost.

Answer 59

Simple Average Cost Method:

Question 60

is calculated without any regard to the quantities involved.

Answer 60

simple average price

Question 61

is arrived at by adding the different prices paid during the period for the batches purchased by dividing the number of batches.

Answer 61

simple average cost

Question 62

Under this method materials are issued out of stock in the order in which they were first received into stock.

Answer 62

FIFO

Question 63

It is assumed that the first material to come into stores will be the first material to be used.

Answer 63

FIFO

Question 64

The issues are priced out at the most recent batch received and continue to be charged until a new batch received is arrived into stock.

Answer 64

LIFO

Question 65

It is a method of pricing the issue of material using the purchase price of the latest unit in the stock.

Answer 65

LIFO

Question 66

: It is a perpetual weighted average system where the issue price is recalculated every time after each receipt taking into consideration both the total quantities and total cost while calculating weighted average price.

Answer 66

Weighted Average Cost Method

Question 67

calculated rarely represents the actual purchase price.

Answer 67

issue price

Question 71

is the ideal order quantity a company should purchase to minimize inventory costs such as

Answer 71

Holding cost Shortage cost Order cost