lesson 2 acctg for materials

Question 1

basic objective of cost accounting

Answer 1

cost control

Question 2

3 elements of cost accounting

Answer 2

material, labor, and expense

Question 3

substance 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

Answer 4

material

Question 5

all commodities consumed in the process of manufacturing

Answer 5

material

Question 6

2 types of material

Answer 6

direct material
indirect material

Question 7

one or more items that are either physically transformed into a usable product or that become part or component of that product

Answer 7

direct material

Question 8

one or more items 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 8

indirect material

Question 9

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

Answer 9

material cost

Question 10

material cost constitutes ?? of the total cost

Answer 10

40%-80%

Question 11

systematic control over purchasing, storing, and consumption of materials

Answer 11

material control

Question 12

providing the right quantity of material of the right quality at the right time and place at the minimum cost

Answer 12

material control

Question 13

objectives of material control

Answer 13

to enable uninterrupted production
to ensure requisite quality of materials
to minimize wastage
to fix responsibility
to provide information

Question 14

techniques of material control

Answer 14

ABC technique
VED analysis
inventory levels
economic order quantity (EOQ)

Question 15

technique that 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 15

ABC technique

Question 16

A items

Answer 16

very tight control and accurate records

Question 17

B items

Answer 17

less tightly controlled and good records

Question 18

C items

Answer 18

simplest controls possible and minimal records

Question 19

VED analyis stands for

Answer 19

vital, essential, and desirable

Question 20

it categorizes stock under three heads based on its importance and necessary for an organization for production or any of its other activities

Answer 20

VED analysis

Question 21

category that 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 21

vital category

Question 22

least important category and their unavailability may result in minor stoppages in production or other processes.

Answer 22

desirable category

Question 23

quantity which must always be maintained in hand.

Answer 23

minimum level

Question 24

factors that are considered while deciding minimum stock level

Answer 24

lead time
rate of consumption
nature of material
re-ordering level

Question 25

quantity of materials beyond which a firm should not exceed its stocks

Answer 25

maximum level

Question 26

level below which stocks should not fall in any case

Answer 26

danger level

Question 27

when the quantity of materials reaches a certain level then fresh order is sent to procure materials again.

Answer 27

re-ordering level

Question 28

it is fixed between minimum level and maximum level

Answer 28

re-ordering level

Question 29

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

Answer 29

economic order quantity

Question 30

EOQ was developed in 1913 by

Answer 30

Ford W. Harris

Question 31

its goal is to identify the optimal number of product units to order

Answer 31

economic order quantity

Question 32

EOQ formula

Answer 32

square root of the quantity of 2SD over h

Question 33

steps in material control

Answer 33

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 34

formal request by the head of the department or other authorities

Answer 34

purchase requisition

Question 35

source of supply has to be selected. it is where a purchase dept maintains a list of suppliers for each type of material

Answer 35

selection of suppliers

Question 36

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

Answer 36

purchase order and follow-up

Question 37

it is where the receiving dept performs the functions of unpacking the goods received and verify their quantities and conditions

Answer 37

receipt of materials

Question 38

step wherein the goods are passed to laboratory which will provide a report on the quality of goods

Answer 38

inspection and testing of materials

Question 39

it is where materials received are damaged or are not in accordance with the specifications, theses are usually returned to the supplier

Answer 39

return of rejected materials

Question 40

it is where the invoices are received by the purchasing dept, the process of assembling the business paper concerned with each purchase and preparation of vouchers begins

Answer 40

passing invoices for payment

Question 41

methods of pricing material issues

Answer 41

first in first out method last in first out method simple average cost method weighted average cost method

Question 42

under this, method materials are issued out of stock in the order in which they were first received into stock. first material to come into stores will be the first material to be used.

Answer 42

first in first out method

Question 43

advantages of FIFO

Answer 43

easy to understand good store keeping practice less clerical cost acceptable under standard accounting practice consistent and realistic practice in valuation of inventory and finished stock

Question 44

disadvantages of FIFO

Answer 44

a. no certainty that materials which have been in stock longest will be used b. possibility of errors c. when the prices rise, production cost is understated d. in inflationary market, there is a tendency to underprice material issues in deflationary market, there is a tendency to overprice such issues e. more than one price has to be adopted f. cost comparison difficult

Question 45

most recent purchase will be the first to be issued

Answer 45

last in first out method

Question 46

advantages of LIFO

Answer 46

a. represent the current market value b. simple to understand c. more realistic since material cost is charged at more recent price d. pricing of issues will be at a more recent current market price e. minimizes unrealized inventory gains and tends to show the conservative profit figure and provides a hedge against inflation

Question 47

disadvantages of LIFO

Answer 47

a. not acceptable in preparation of financial accounts b. not intended to represent the true physical flow of materials from the stores c. more than one price d. renders cost comparison between jobs difficult e. involves more clerical work and sometimes valuattion may go wrong f. in times of inflation, valuation of inventory under this method will not represent the current market prices

Question 48

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

Answer 48

simple average cost method

Question 49

calculated without any regard to the quantities involved. it is arrived at by adding the different prices paid during the period for the batches purchased by dividing the number of batches

Answer 49

simple average cost method

Question 50

method 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. the issue price calculate rarely represents the actual purchase price

Answer 50

weighted average cost method