Accounting for Materials

• Key characteristic of Periodic Inventory System

  1. Recorded in an account entitled Purchases
  2. Uses Materials Inventory - Beginning account
  3. Ending Inventory is determined through physical count
  4. Cost of materials issued is determined by deducting materials available for use to Materials Inventory - End
• Key Characteristics of Perpetual Inventory

  1. The purchase of direct and indirect materials are issued in one account entitled, "Materials Inventory"
  2. Cr. Materials Inventory for issuance of materials. Dr. WIP for direct, Dr. FOH for indirect
  3. Both cost of materials issued and the ending inventory are readily available
• Inventory is a result of purchasing raw materials and parts. It is also the result of applying labor and factory overhead to the raw materials to produce finished goods
• Reduction of inventory is a result of normal use and also finding alternative use for scrapping unneeded items
• Optimum inventory investment is based on quantitative techniques, which are designed to minimize the cost of carrying inventory and the cost of ordering inventory
• Forecast helps determine when to order materials. Controlling inventory can be accomplished by scheduling production
• Conteol is exercised by people who are making personal judgements partially on the basis of past experiences
• What are the commonly used control procedure

  1. Order cycling
  2. Min-max method
  3. Two - bin method
  4. Automatic Order Systems
  5. ABC Plan
• What do you call the method where materials at hand are reviewed regularly or periodic cycle?

  Order cycling
• A technique used by small companies where when their supply reach 60 days supply, they order 30 days supply

  90 - 60 - 30 day method
• What do you call to a method that is based on the assumption that materials inventory have minimum and maximum levels?

  Min - Max method
• What do you call to a method used for materials that are considered inexpensive and/or essential and has an advantage of being simple and requiring minimal clerical time?

  Two - bin Method
• What do you call to a method used by most companies that are computerised?

  Automatic Order System
• What do you call to a method used by companies with a large number of materials, each one having a different value and also a systematic way of grouping materials into separate classification and determining the degree of control each group requires?

  ABC Plan
• What method focuses on the total cost of the materials items to be used from the perspective of the production process rather than on just the unit costs?

  ABC Method
• What are the two basic aspects of materials control?

  1. Physical control or safeguarding the materials
  2. Control of the investment in materials
• What does general effective control of materials involves?

  1. Limited access
  2. Segregation of duties
  3. Accuracy in recording
• Data where calculation of order point is based

  1. Usage - the anticipated rate at which materials will be used
  2. Lead time - the estimated interval between the placement of an order and receipt of material
  3. Safety stock - the estimated minimum level of inventory needed to protect against running out of stock
• Formula of order point


  (Usage x lead time ) + safety stock = order point
• What do you call to the purchase order that results in the minimum total inventory cost?

  Economic Order Quantity (EOQ)
• Factors to be considered in determining order costs

  1. Salaries and wages of those engaged in purchasing, receiving and inspecting materials
  2. Communication costs
  3. Materials accounting and record keeping
• Factors to be considered in determining carrying costs

  1. Materials storage and handling costs
  2. Interest, Insurance and property taxes
  3. Loss due to theft, deterioration or obsolescence
  4. Records and supplies associated with the carrying of inventories
• Formula Method of getting the EOQ

  
• What do you call the written request, usually sent to inform the purchasing department of a need for a materials or supplies?

  Purchase requisition
• What do you call to the written request to a supplier for specified goods at an agreed upon price? This request also includes the term of delivery and terms of payment. What is it?

  Purchase order
• What is not shown in the copy of the purchase order sent to the receiving department?

  quantity ordered
• What do you call to a written order to the storekeeper to deliver materials or supplies to the place designated or to issue materials to the person presenting a properly executed requisition?

  Materials Requisition Slip
• Discount - constitute a deduction in the list price

  1. Trade Discount
  2. Quantity Discounts - cost saving for volume purchases
  3. Cash discounts
• What cash discount method is applied when purchases and liabilities are recorded at gross at the time of purchases and discount is only recognized when the amount is paid within the discount period?

  when taken method
• What do you call to a cash discount method that records purchases and liabilities at net of the discount and uses an account entitled "Purchase DIscount Lost" when discount is not availed and lastly, method that does not use "Purchase Discount" account. What is it?

  when not taken method
• What do you call to a cash discount method that recorded purchase at net and recorded liability at gross and charge the difference to an allowance for purchase discount account>

  when offered method
• What do you call to a method of accounting freight in where freight incurred on the purchase is added to the invoice price and has an effect of increasing the unit cost?

  Direct Chargig
• In this method of direct charging in two or more materials, freight is allocated based on the peso value of the item purchase. What do you call this method?

  Relative peso value method
• What do you call to a method where freight incurred is charged to factory overhead control account?

  Indirect Charging
• What do you call to a method where freight is allocated on the basis of the weight of the item purchased?

  relative weight method
• What do you call to all of the units that do not meet the production standards and are either sold for their salvage value or discarded?

  Spoiled units
• What do you call to units that do not meet production standards and must be processed further in order to be salable as good units or as irregulars?

  Defective Units
• What do you call to the left over from the production process that cannot be put back into the production for the same purpose but may be usable for different purposes or which may be sold to outsiders for a nominal amount?

  Scrap materials
• What do you call to left over from the production process that has np further use and may require costs for their disposal?

  Waste Materials
• What method is used if the reason for the spoilage is the job itself and has an effect of increasing the unit costs of the remaining finished goods in the job?

  charged to the specific job