DE LEON 2022 - CHAPTER 6

• SYSTEMS OF ACCOUNTING FOR MATERIALS ISSUED TO PRODUCTION AND ENDING MATERIALS INVENTORY

  A) periodic

  B) perpetual

  
• ACCOUNTING BY THE PERIODIC INVENTORY SYSTEM

  A) purchases

  B) beginning

  C) materials

  D) materials

  E) inventory

  F) available

  G) physical

  H) deducting

  I) materials

  J) inventory

  K) end

  
• ACCOUNTING BY THE PERPETURAL INVENTORY SYSTEM

  Under a perpetual inventory system, the purchase of direct and indirect materials is recorded in an account entitled "Materials Inventory" rather than in a purchase account.

  A) balance

  B) previous

  
• CONTROL PROCEDURES

  A) inventory

  B) reduction

  C) optimum inventory management

  D) efficient purchasing

  E) management

  F) investment

  G) forecasts

  H) inventory control

  I) methods

  
• COMMONLY USED CONTROL PROCEDURES

  A) order

  B) min-max

  C) two-bin

  D) automatic

  E) ABC

  
• Order Cycling - method where materials on hand are reviewed on a regular or periodic eycle.
• Min max method - this method is based on the assumption that materials inventory have minimum and maximum levels.
• Two bin method - this method is used for materials that are considered inexpensive and/or nonessential.

  The advantage of this method is that it is simple and requires

  only a minimum of clerical time.
• automatic order system - this method is used by most companies that are computerized.
• ABC Plan - method used by companies with a large number of materials, each one having a different value.
• MATERIAL CONTROL

  There are two basic aspects of materials control:

  Physical control or safeguarding materials

  Control of the investment in materials
• Physical control of materials

  effective control al they are involves:

  1. Limited access.

  2. Segregation of duties.

  3. Accuracy in recording
• Limited access

  Only authorized personnel should have access to materials storage area. All issuance of materials for use in production and release of finished goods for shipment should be properly documented and approved.
• Segregation of Duties - The following functions should be segregated to minimize opportunities for misappropriation of inventories - purchasing, receiving, storage, use and recording.
• Accuracy in Recording - Inventory records should permit the detenmination of inventory quantities on hand upon request, and cost records should provide the data for the valuation of inventories for the preparation of financial statements.
• Controlling the Investment in Materials.

  One of the most important objectives of material control is maintaining the proper balance of materials on hand.
• Order Point

  1. Usage - the anticipated rate at which the materials will be used.
  2. Lead time - the estimated time interval between the placement of an under and receipt of the material.
  3. Safety stock - the estimated minimum level of inventory needed to protty against running out of stock.
• Economic Order Quantity- the purchase order which results in the minimum total inventory cost.
• METHODS OF COMPUTING ECONOMIC ORDER QUANTITY

  TABULAR METHOD - Under this method several purchase order

  quantity alternatives are listed in separate columns.

  FORMULA METHOD - This is easy to use and it produces an exact figures The formula that can be used is:

  
• Order point

  A) lead time

  B) inventory

  C) order

  
• safety stock

  
• PURCHASE REQUISITION - is a written request, usually sent to inform the purchasing department ofa need for materials or supplies.

  
• PURCHASE ORDER - is a written request to a supplier for specified goods at an agreed upon price.

  
• Receiving report - when the goods that were ordered are delivered, the recieving department will unpack and count them

  
• MATERIALS REQUISITION SLIP - a wilten order to the storekeeper 1o deliver materials or supplies to the place designated or to issue the materials to the person presenting a properly executed requisition.

  
• First in First out - used in perpetual

  
• Average method

  A) weighted average

  
• average method

  A) moving average

  
• DISCOUNTS - constitute a reduction in the list price.
• Trade discounts - generally given in terms of percentage (15%, 10%, 5%) and are used to convert single price list into a series of price fists for different types of middleman.
• Quantity discounts - represent cost savings for volume purchases
• cash discounts - granted to customers to motivate them to pay promptly
• Freight in

  Direct Charging - the freight incurred on the purchase of raw materials is added to the invoice price

  Relative peso value method - freight is allocated on the basis of the peso value of the items purchased

  Relative weight method - freight is allocated on the basis of the weight of the items purchased.

  
  

  Indirect charging - the freight incurred on the purchase of raw materials is charged to Factory Overhead Control account.