CHAPTER 2: ACCOUNTING FOR MATERIALS

CHAPTER 2: ACCOUNTING FOR MATERIALS

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1. An effective cost control system should include:

• An established plan of objectives and goals to be achieved.
• Regular reports showing the difference between goals and actual performance.
• Specific assignment of duties and responsibilities.
• All of these are correct.

ANSWER: d

RATIONALE: An effective cost control system should include an established plan of goals and objectives, reports comparing budgeted goals to actual performance, and assignment of specific duties and responsibilities to operating personnel.

POINTS: 1

DIFFICULTY: Easy

LEARNING OBJECTIVES: PRIN.EDWA.16.1 - Introduction

ACCREDITING STANDARDS: AACSB Analytic

ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Internal Controls OTHER: Bloom's: Remembering

2. To effectively control materials, a business must maintain:

• Limited access.
• Combination of duties.
• Safety stock.
• None of these are correct.

ANSWER: a

RATIONALE: To control materials a business must maintain limited access, segregation of duties, and accuracy in recording.

POINTS: 1

DIFFICULTY: Moderate

LEARNING OBJECTIVES: PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control

ACCREDITING STANDARDS: AACSB Analytic

ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Internal Controls

TOPICS: Materials Control

OTHER: Bloom's: Remembering

• Janet is the purchasing agent at Frameco Manufacturing. Her duties include vendor selection and ordering materials.

Due to a recent economic downturn and resulting cut backs, Janet has been assigned the additional duty of preparing receiving reports after comparing the goods received to the purchase order. This is an example of:

• unlimited access to materials.
• independence of assigned functions.
• misappropriation of assets.
• a lack of segregation of duties.

ANSWER: d

RATIONALE: Because Janet’s job as a purchasing agent involves preparing the purchase orders and she is also comparing items received to the purchase orders, there is a lack of segregation of duties. This increases the potential for the misappropriation of assets, but Principles of Cost Accounting 17th Edition Vanderbeck Test Bank Visit TestBankDeal.com to get complete for all chapters

CHAPTER 2: ACCOUNTING FOR MATERIALS

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there is not enough information given to determine that a misappropriation has indeed occurred.

POINTS: 1

DIFFICULTY: Challenging

LEARNING OBJECTIVES: PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control

ACCREDITING STANDARDS: AACSB Reflective Thinking

ACCT.AICPA.FN.03 - Measurement BUSPROG.06 - Reflective Thinking IMA-Internal Controls

TOPICS: Materials Control

OTHER: Bloom's: Analyzing

• Marley Company hired a consultant to help improve its operations. The consultant’s report stated that Marley’s

inventory levels are excessive and cited several negative consequences to Marley as a result. Which of the following consequences was not cited in the report?

• Possible other uses for working capital now tied up in inventory
• Production stoppages due to parts not being available
• Higher property taxes and insurance costs
• Large quantities of obsolete materials

ANSWER: b

RATIONALE: It is important to maintain inventories of sufficient size and variety to meet production needs. However, if Marley’s inventories are excessive, it is likely that parts are available for production, but the excess inventory is resulting in higher costs related to holding those items such as property taxes and insurance and potential losses from obsolescence or deterioration. Funds invested in inventories could be used for other purposes.

POINTS: 1

DIFFICULTY: Moderate

LEARNING OBJECTIVES: PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control

ACCREDITING STANDARDS: AACSB Reflective Thinking

ACCT.AICPA.BB.07 - Critical Thinking BUSPROG.06 - Reflective Thinking IMA-Strategic Planning

TOPICS: Materials Control

OTHER: Bloom's: Analyzing

• The data used to calculate the order point include all of the following except:
• the costs of placing an order.
• the rate at which the material will be used.
• the estimated time interval between the placement and receipt of an order.
• the estimated minimum level of inventory needed to protect against stockouts.

ANSWER: a

RATIONALE: Calculating an order point is based on usage, lead time and safety stock. The cost of placing an order is used in determining the economic order quantity.

POINTS: 1

DIFFICULTY: Moderate

LEARNING OBJECTIVES: PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control

CHAPTER 2: ACCOUNTING FOR MATERIALS

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ACCREDITING STANDARDS: AACSB Reflective Thinking

ACCT.AICPA.FN.03 - Measurement BUSPROG.06 - Reflective Thinking IMA-Strategic Planning

TOPICS: Materials Control

OTHER: Bloom's: Remembering

• Murphy Company uses 3,000 yards of material each day to make hats. It usually takes five days from the time Murphy

orders the material to when it is received. If Murphy’s desired safety stock is 6,000 yards, what is Murphy’s order point?

• 6,000 yards
• 12,000 yards
• 15,000 yards
• 21,000 yards

ANSWER: d

RATIONALE: 3,000 (daily usage) x 5 (lead time) 15,000

Safety stock 6,000 Order point 21,000

POINTS: 1

DIFFICULTY: Moderate

LEARNING OBJECTIVES: PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control

ACCREDITING STANDARDS: AACSB Analytic

ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Strategic Planning

TOPICS: Materials Control

OTHER: Bloom's: Applying

• What is the objective of the economic order quantity (EOQ) model for inventory?
• To minimize order costs or carrying costs, whichever are higher
• To minimize order costs or carrying costs and maximize the rate of inventory turnover
• To minimize the total order costs and carrying costs over a period of time
• To order sufficient quantity to economically meet the next period's demand

ANSWER: c

RATIONALE: If the demand for the product can be determined because it is predictable, the essence of any EOQ model for inventory is to minimize the total order costs and also minimize the total carrying costs.

POINTS: 1

DIFFICULTY: Easy

LEARNING OBJECTIVES: PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control

ACCREDITING STANDARDS: AACSB Analytic

ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Strategic Planning

TOPICS: Materials Control

OTHER: Bloom's: Remembering

8. Order costs would include all of the following except:

CHAPTER 2: ACCOUNTING FOR MATERIALS

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• Receiving clerk’s wages.
• Storeroom keeper’s wages.
• Purchasing department’s telephone bill.
• Transportation in.

ANSWER: b

RATIONALE: Costs related to the purchase and receipt of materials are considered order costs while costs related to the storage and maintenance of materials are considered storage costs.The storeroom keeper’s wages would be a storage cost.

POINTS: 1

DIFFICULTY: Moderate

LEARNING OBJECTIVES: PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control

ACCREDITING STANDARDS: AACSB Analytic

ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Strategic Planning

TOPICS: Materials Control

OTHER: Bloom's: Understanding

• Expected annual usage of a particular raw material is 1,200,000 units, and standard order size is 10,000 units. The

invoice cost of each unit is $145, and the cost to place one purchase order is $105. The estimated annual order cost is:

• $12,000.
• $17,400.
• $12,600.
• $800,000.

ANSWER: c

RATIONALE: Annual order cost = Number of orders × Per order cost

= 1,200,000 units × $105 10,000 units = 120 orders × $105

= $12,600

POINTS: 1

DIFFICULTY: Challenging

LEARNING OBJECTIVES: PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control

ACCREDITING STANDARDS: AACSB Analytic

ACCT.AICPA.FN.03 - Measurement BUSPROG.03 - Analytic IMA-Strategic Planning

TOPICS: Materials Control

OTHER: Bloom's: Applying

10. Carrying costs would include all of the following except:

• Warehouse rent.
• Inspection employees’ wages.
• Losses due to obsolescence.
• Property taxes.

ANSWER: b