1

DELEON CHAPTER 6
CHAPTER 6 – ACCOUNTING FOR MATERIALS

Problem 1 - Norman Companu\y

_____________
a) EOQ = \/ 2 x 64,000 x 40
2
= 1600 units

Ordering cost = No of orders x ordering cost

= 64,000 x 40
1,600
= 1,600

Carrying cost = Average inventory x 2

= 1600 x 2
2
= 1,600

Problem 2 – Abner Company

_____________________________________________
a) EOQ = 2 (number of units required annually)(cost of order)
carrying cost per unit
___________________
2 x 13,000 x 200
= 5.20
____________
5,200,000
= 5.20

= 1,000 units

b) Number of orders in a year = annual requirements

EOQ
= 13,000/1,000
= 13 orders

c) Average inventory based on EOQ = 1,000/2

2

= 500

d) Total carrying cost = Average inventory x Carrying cost/unit

= 500 x 5.20
= P 2,600

Page 2
Total ordering cost = No. of orders x ordering cost
= 13 x 200
= P 2,600

Problem 3 - Olive Corporation

____________________
1. EOQ = (2 x 16,000 x P15) / P3 = 400 units

2. Ordering costs Carrying costs

Order
No. of Cost Ordering Average Carrying TOTAL
size orders per order costs Inventory CCPU cost COST
6,400 2.5 P 15 P 37.50 3,200 P 3 P9,600 P9,637.50
1,600 10 15 150.00 800 3 2,400 2,550.00
400 40 15 600.00 200 3 600 1,200.00
200 80 15 1,200.00 100 3 300 1,500.00
100 160 15 2,400.00 50 3 150 2,550.00

No. of Orders = Annual demand / Order size

Average inventory = Order size / 2

Problem 4 – Heavyweight Co.

1. Allocation based on cost
Product Invoice Percentage Share of Freight TotaLCost Cost/pound
X 125,000 2.5% 3,125 128,125 12.81
Y 75,000 2.5% 1,875 76,875 12.81
Z 100,000 2.5% 2,500 102,500 3.67
300,000 7,500 307,500
Percentage = 7,500/300,000
3

Allocation based on shipping weight

Product Weight Fraction Share - Freight Total Cost Cost/pound
X 10,000 10,000/23,500 3,192 128,192 12.82
Y 6,000 6,000/23,500 1,915 76.915 12.82
Z 7,500 7,500/23,500 2,393 102,393 13.65
23,500 7,500 307,500

Problem 5 - Maxie Company

1. Amount debited to Materials = 100,000 x 80% x 90% x 90% = 64,800
2. Amount debited to Materials = 100000 x 80% x 90% x 90% x 98% =
63,504

Problem 6 –
1. FIRST-IN, FIRST-OUT
Received Issued Balance
1,600 x 6.00 9,600`
5 400 x 7.00 2,800 1,600 x 6.00 9,600
400 x 7.00 2,800
9 400 x 8.00 3,200 1,600 x 6.00 9,600
400 x 7.00 2,800
400 x 8.00 3,200
16 800 x 6.00 4,800 800 x 6.00 4,800
400 x 7.00 2,800
400 x 8.00 3,200
24 600 x 9.00 5,400 800 x 6.00 4,800
400 x 7.00 2,800
400 x 8.00 3,200
600 x 9.00 5,400
27 800 x 6.00 4,800 200 x 7.00 1.400
200 x 7.00 1,400 400 x 8.00 3,200
600 x 9.00 5,400

Cost of materials issued = 4,800 + 4,800 + 1,400 = 11,000

Cost of ending inventory = 1,400 + 3,200 + 5,400 = 10,000
4

2, AVERAGE
Received Issued Balance
1 1,600 x 6.00 9,600
5 400 x 7.00 2,800 2,000 x 6.20 12.400
9 400 x 8.00 3,200 2,400 x 6.50
15,600
16 800 x 6.50 5,200 1,600 x 6.50 10,400
24 600 x 9.00 5,400 2,200 x 7.18 15,800
27 1,000 x 7.18 7,180 1,200 x 7.18 8,620

Cost of materials issued = 5,200 + 7,180 = 12,380

Cost of ending inventory = 8,620

Problem 7 – Heaven & Earth

1. FIFO
Issued = 600 x 4.00 = 2,400

Cost of inventory - 200 x 5.00 =- 1,000

500 x 4.50 = 2,250
400 x 4.00 = 1,600

2. WEIGHTED AVERAGE

Received Issued Balance

1 1,000 x 4.00 4,000
3 250 x 4.00 1,000 750 x 4.00 3,000
5 500 x 4.50 2,250 1,250 x 4.20 5,250
6 150 x 4.20 630 1,100 x 4.20 4,620
10 110 x 4.20 462 990 x 4.20 4,158
11 ( 10)x 4.20 ( 42) 1,000 x 4.20 4,200
15 500 x 5.00 2,500 1,500 x 4.47 6,700
20 (300) x 5.00 ( 1,500) 1,200 x 4.33 5,200
26 100 x 4.33 433 1,100 x 4.33 4,767

Problem 8 – Sterling Company

A. PERPETUAL
1. FIFO
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Received Issued Balance

1 300 x 17.50 5,250
8 200 x 1750 3,500 100 x 17.50 1,750
10 900 x 18.00 16,200 100 x 17.50 1,750
900 x 18.00 16,200
18 100 x 17.50 1,750 400 x 18.00 7,200
500 x 18.00 9,000
20 1,200 x 18,25 21,900 400 x 18.00 7,200
1,200 x 18.25 21,900
25 400 x 18.00 7,200
600 x 18.25 10,950 600 x 18.25 10,950

2. AVERAGE
Received Issued Balance
1 300 x 17.50 5,250
8 200 x 17.50 3,500 100 x 17.50 1,750
10 900 x 18.00 16,200 1,000 x 17.95 17,950
18 600 x 17.95 10,770 400 x 17.95 7,180
20 1,200 x 18.25 21,900 1,600 x 18.175 29,080
25 1000 x 18.175 18,175 600 x 18.175 10,905

Problem 9 – Bedrock Company

a. Loss due to spoiled work is spread over all jobs
1. Work in process 12,400,000
Materials 3,600,000
Payroll 4,000,000
FO Applied 4,800,000

2. Spoiled Goods 100,000

FO Control 24,000
Work in process (100 x 1,240) 124,000

3. Finished goods 12,276,000

Work in process 12,276,000

Unit cost = 12,400,000-124,000 = 1,240

10,000-100
6

B, Loss due to spoiled work is charged to the specific job

1. Work in process 11,600,000

Materials 3,600,000
Payroll 4,000,000
FO Applied (4,000,000 x 100%) 4,000,000

2. Spoiled Goods 100,000

Work in process 100,000

3. Finished goods 11,500,000

Work in process 11,500,000

Unit cost = 11,500,000/9,900 = 1,161,62

The increase in the unit cost is due to the loss absorbed by the
remaining good units computed as follows
Cost (100 x 1,160) = 116,000
Selling price 100,000
Loss 16,000/9900 = 1.62

Problem 10 – Kyralei Co.

A)1. RAGC is charged with the cost of defective units
a. Work in process 1,760,000
Materials (2,000 x 400) 800,000
Payroll (2,000 x 200) 400,000
FO Applied (400,000 x 140%) 560,000

b. Work in process 232,000

Materials (2,000 x 20) 40,000
Payroll (2,000 x 40) 80,000
FO Applied (80,000 x 140%) 112,000

c. Finished goods 1,992,000

Work in process 1,992,000
7

2. Cost of correcting defective work in not charged to RAGC

a. Work in process 1,800,000
Materials 800,000
Payroll 400,000
FO Applied (40,000 x 150%) 600,000

b. FO Control 240,000
Materials 40,000
Payroll 80,000
FO Applied 120,000

c. Finished goods 1,800,000

Work in process 1,800,000
B)
1. Original cost 2.000 units 1,760,000
Additional cost 232,000
Total costs 1,992,000
Divide by 2,000
Cost per unit 996.00

2. Original cost 2,000 units 1,800,000

Divide by 2,000
Cost per unit 900.00

Problem 11 – Little Mermaid

1. Charged to specific job
a. Work in process 2,440,000
Materials (5,000 x 200) 1,000,000
Payroll (5.000 x 120) 600,000
FO Applied (600,000 x 140%) 840,000

b. Work in process 122,000

Materials (1,000 x 50) 50,000
Payroll (1,000 x 30) 30,000
FO Applied (30,000 x 140%) 42,000

c. Spoiled good ( 20 x 400) 8,000

Work in process 8,000
8

d. Finished goods 2,554,000

Work in process 2,554,000

2. Charged to all production (FO rate should be 150% of direct labor cost)
a. Work in process 2,500,000
Materials 1.000,000
Payroll 600,000
FO Applied (20,000 x 150%) 900,000

b. FO Control 125.000
Materials 50,000
Payroll 30,000
FO Applied (30,000 x 150%) 45.000

c. Spoiled Goods 8.000

Factory Overhead Control 2,000
Work in process ( 20 x 500) 10,000

d. Finished goods 2.490,000

Work in process 2,490,000

3. a. Method used is charged to specific job

Total Per unit
Original cost 5,000 units 2,440,000 488.00
Additional cost – defective 122,000 Inc. 24.40
2.562.000
512.40
Spoiled ( 20) ( 8,000) Inc .45
Net 4,980 2,554,000 512.85
Divide by 4,980
Cost per unit 512.85

Increase in unit cost due to spoiled units

Cost ( 512.40 x 20) 10,248
Selling price 8,000
Loss 2,248 divide by
remaining units
2,248/4,980 = 0.45
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b. Method used is charged to all production

Original cost 5,000 units 2,500,000
Spoiled ( 20) ( 10,000)
Net 4,980 2,490,000
Divide by 4,980
Cost per unit 500

Problem 12 – Marvin Corporation-

1. Work in process 300,000
Materials 117,000
Payroll 100,000
FO Applied 83,000

2. Work in process 4,350

Materials 1,650
Payroll 1,500
FO Applied 1,200

3. Spoiled goods 825

Work in process 825

4. Finished goods 303,525

Work in process 303,525

Problem 13 – Raindrops Company

_____________________
EOQ = \/ 2 x 60,000 x 800
.04

Problem 14 – Nicole Company

1. Safety stock (5 days x 100 units) 500 units

2. Reorder point (5 days x 600 units) 3,000 units

3. Normal maximum inventory = (3,500/2) + 500 units = 2,250 units

4. Absolute maximum inventory = 3,500 + 500 units = 4,000 units

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Problem 15 -
Material Yearly Usage Unit cost Percent Total cost Percent
1x4 5,250 P 2.00 13.1 (5,250/40,100) P 10,500 21,2
1x5 6,000 1.75 15.0 (6,000/40,100) 10,500 21.2
1x8 5,500 1.85 13.7 10,175 20.6
A 63.0%

1x1 10,000 0.50 24.9 5,000 10.1

1x3 2,000 2.50 5.0 5,000 10.1
1x2 7,100 0.65 17.7 4,615 9.3
B 29.5%

1x6 2,750 0.80 6.9 2.200 4.5

1x7 1,500 1.00 3.7 1,500 3.0
C 7.5%
40,100 100.0% P49,490 100.0%
Problem 16
Material Yearly usage Unit cost Percent Total cost Percent
325 4,500 P30.00 8.3 (4,500/53,960) P 135,000 45.2
730 2,500 28.00 4.6 70,000 23.4
126 7,750 3.00 14.4 23.250 7.8
A 76.4%

415 3,500 6.50 6.5 22,750 7.6

260 9,300 1.90 17.2 17,670 5.9
810 2,000 7.00 3.7 14,000 4.7
B 18.2 % -

540 13,500 1.00 25.0 13,500 4.5

241 10,900 0.25 20.2 2.725 0.9
C 5.4%
100% P398,895 100%
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TRUE/FALSE
1. True 6. False 11. True
2. False 7. False 12. False
3. False 8. False 13. False
4. True 9. False 14. False
5. True 10. True 15. False

Multiple choice

THEORIES PROBLEMS
1, a 1. a 6. c 11. c 16. a 21. c
2, b 2 c. 7. b 12. d 17. b 22. d
3, d 3. b 8. a 13. d 18. d 23. a
4, c 4. b 9. a 14. b 19. c 24. a
5, b 5. a 10. c 15. b 20. b 25. d

CHAPTER 6 – ACCOUNTING FOR MATERIALS

Problem 1 - Norman Companu\y

_____________
a) EOQ = \/ 2 x 8,000 x 40
25
= 160 units

Ordering cost = No of orders x ordering cost

= 8,000 x 40
160
= 2,000
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Carrying cost = Average inventory x 25

= 160 x 25
2
= 2000

Problem 2 – Abner Company

_____________________________________________
a) EOQ = 2 (number of units required annually)(cost of order)
carrying cost per unit
___________________
2 x (1,200x 3) x 200
= 25
____________
1,440,000
= 25

= 240 units

d) Number of orders in a year = annual requirements

EOQ
= 3,600/240
= 15 orders

e) Average inventory based on EOQ = EOQ/2

= 240/2
= 120

d) Total carrying cost = Average inventory x Carrying cost/unit

= 120 x 25
= P 3,000

Page 2
Total ordering cost = No. of orders x ordering cost
= 15 x 200
= P 3,000

Problem 3 - Ulli Corporation

____________________
1. EOQ = (2 x 16,000 x P15) / P3 = 400 units

2. Ordering costs Carrying costs

Order No. of Cost Ordering Average Carrying
size orders per order costs Inventory CCPU cost TRIC
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6,400 2.5 P 15 P 37.50 3,200 P3 P9,600 P9,637.50

1,600 10 15 150.00 800 3 2,400 2,550.00
400 40 15 600.00 200 3 600 1,200.00
200 80 15 1,200.00 100 3 300 1,500.00
100 160 15 2,400.00 50 3 150 2,550.00

No. of Orders = Annual demand / Order size

Average inventory = Order size / 2

Problem 4 – Heavyweight Co.

1. Allocation based on cost
Product Invoice Percentage Share of Freight Total cost Cost/pound
X 11,250 4% 450 11,700 2.60
Y 13,500 4% 540 14,040 2.34
Z 15,750 4% 630 16,380 2.184

2. Allocation based on shipping weight

Product Weight Freight/pound Share of Freight Total Cost Cost/pound
X 4,500 .09 405 11,655 2.59
Y 6,000 .09 540 14,040 2.34
Z 7,500 .09 675 16,425 2.19

Problem 5 - Maxie Company

4. Amount debited to Materials = 100,000 x 80% x 90% x 90% = 64,800
5. Amount debited to Materials = 100000 x 80% x 90% x 90% x 98% = 63,504

Page 3
Problem 6 –
1. FIRST-IN, FIRST-OUT
Received Issued Balance
1,600 x 6.00 9,600`
5 400 x 7.00 2,800 1,600 x 6.00 9,600
400 x 7.00 2.800
9 400 x 8.00 3,200 1,600 x 6.00 9,600
400 x 7.00 2,800
400 x 8.00 3,200
16 800 x 6.00 4,800 800 x 6.00 4,800
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400 x 7.00 2,800

400 x 8.00 3,200
24 600 x 9.00 5,400 800 x 6.00 4,800
400 x 7.00 2,800
400 x 8.00 3,200
600 x 9.00 5,400
27 800 x 6.00 4,800 200 x 7.00 1.400
200 x 7.00 1,400 400 x 8.00 3,200
600 x 9.00 5,400

Cost of materials issued = 4,800 + 4,800 + 1,400 = 11,000

Cost of ending inventory = 1,400 + 3,200 + 5,400 = 10,000

2, AVERAGE
Received Issued Balance
1 1,600 x 6.00 9,600
5 400 x 7.00 2,800 2,000 x 6.20 12.400
9 400 x 8.00 3,200 2,400 x 6.50 15,600
16 800 x 6.50 5,200 1,600 x 6.50 10,400
24 600 x 9.00 5,400 2,200 x 7.18 15,800
27 1,000 x 7.18 7,180 1,200 x 7.18 8,620

Cost of materials issued = 5,200 + 7,180 = 12,380

Cost of ending inventory = 8,620

Problem 7 – Heaven & Earth

1. FIFO
Issued = 600 x 4.00 = 2,400

Cost of inventory - 200 x 5.00 =- 1,000

500 x 4.50 = 2,250
400 x 4.00 = 1,600

Page 3
2. WEIGHTED AVERAGE

Received Issued Balance

1 1,000 x 4.00 4,000
3 250 x 4.00 1,000 750 x 4.00 3,000
5 500 x 4.50 2,250 1,250 x 4.20 5,250
6 150 x 4.20 630 1,100 x 4.20 4,620
10 110 x 4.20 462 990 x 4.20 4,158
11 ( 10)x 4.20 ( 42) 1,000 x 4.20 4,200
15 500 x 5.00 2,500 1,500 x 4.47 6,700
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20 (300) x 5.00 ( 1,500) 1,200 x 4.33 5,200

26 100 x 4.33 433 1,100 x 4.33 4,767

Problem 8 – Sterling Company

A. PERPETUAL
1. FIFO
Received Issued Balance
1 300 x 17.50 5,250
8 200 x 1750 3,500 100 x 17.50 1,750
10 900 x 18.00 16,200 100 x 17.50 1,750
900 x 18.00 16,200
18 100 x 17.50 1,750 400 x 18.00 7,200
500 x 18.00 9,000
20 1,200 x 18,25 21,900 400 x 18.00 7,200
1,200 x 18.25 21,900
25 400 x 18.00 7,200
600 x 18.25 10,950 600 x 18.25 10,950

2. AVERAGE
Received Issued Balance
1 300 x 17.50 5,250
8 200 x 17.50 3,500 100 x 17.50 1,750
10 900 x 18.00 16,200 1,000 x 17.95 17,950
18 600 x 17.95 10,770 400 x 17.95 7,180
20 1,200 x 18.25 21,900 1,600 x 18.175 29,080
25 1000 x 18.175 18,175 600 x 18.175 10,906

Problem 9 – Bedrock Company

a. Loss due to spoiled work is spread over all jobs
1. Work in process 1,320,000
Materials 360,000
Payroll 480,000
FO Applied 480,000

2. Spoiled Goods 8,000

FO Control 8,500
Work in process (100 x 165) 16,500

3. Finished goods 1,303,500

16

Work in process 1,303,500

Unit cost = 1,303,500/7,900 = 165

B, Loss due to spoiled work is charged to the specific job

1. Work in process 1,320,000

Materials 360,000
Payroll 480,000
FO Applied 480,000

2. Spoiled Goods 8,000

Work in process 8,000

3. Finished goods 1,312000

Work in process 1,312,000

Problem 10 – Kyralei Co.

A)1. RAGC is charged with the cost of defective units
a. Work in process 176,000
Materials 80,000
Payroll 40,000
FO Applied (40,000 x 140%) 56,000

b. Work in process 23,200

Materials 4,000
Payroll 8,000
FO Applied 11,200

c. Finished goods 199,200

Work in process 199,200

2. Cost of correcting defective work in not charged to RAGC

a. Work in process 180,000
Materials 80,000
Payroll 40,000
FO Applied (40,000 x 150%) 60,000

b. FO Control 24,000
Materials 4,000
Payroll 8,000
17

c. Finished goods 180,000

Work in process 180,000
B)
1. Original cost 2.000 units 176,000
Additional cost 23,200
Total costs 199,200
Divide by 2,000
Cost per unit 99.60

2. Original cost 2,000 units 180,000

Divide by 2,000
Cost per unit 90.00

Problem 11 – Little Mermaid

1. Charged to specific job
a. Work in process 73,000
Materials 25,000
Payroll 20,000
FO Applied (20,000 x 140%) 28,000

b. Work in process 1,220

Materials 500
Payroll 300
FO Applied 420

c. Spoiled goods 100

Work in process 100

d. Finished goods 74,120

Work in process 74,120

2. Charged to all production (FO rate should be 150% of direct labor cost)
a. Work in process 75,000
Materials 25,000
Payroll 20,000
FO Applied (20,000 x 150%) 30,000

b. FO Control 1,250
Materials 500
Payroll 300
FO Applied (300 x 150%) 450
18

c. Spoiled Goods 100

Factory Overhead Control 200
Work in process 300

d. Finished goods 74,700

Work in process 74,700

3. a. Method used is charged to specific job

Original cost 5,000 units 73,000
Additional cost – defective 1,220
Spoiled ( 20) ( 100)
Net 4,980 74,120
Divide by 4,980
Cost per unit 14.88

c. Method used is charged to all production

Original cost 5,000 units 75,000
Spoiled ( 20) ( 300)
Net 4,980 74,700
Divide by 4,980
Cost per unit 15.00

Problem 12 – Marvin Corporation-

1. Work in process 300,000
Materials 117,000
Payroll 100,000
FO Applied 83,000

2. Work in process 4,350

Materials 1,650
Payroll 1,500
FO Applied 1,200

3. Spoiled goods 825

Work in process 825

4. Finished goods 303,525

Work in process 303,525

Problem 13 – Raindrops Company

_____________________
EOQ = \/ 2 x 60,000 x 800
1,200
19

Problem 14 – Nicole Company

1. Safety stock (5 days x 100 units) 500 units

2. Reorder point (5 days x 600 units) 3,000 units

3. Normal maximum inventory = (3,500/2) + 500 units = 2,250 units

4. Absolute maximum inventory = 3,500 + 500 units = 4,000 units

Problem 15 -
____________________
EOQ = \/ 2 z 100,000 x 413
25.30

a. Investment costs
Invoice price P 125.00
Excise tax ( 125.00 x 4%) 5.00
Insurance on shipment 2.00
Total P 132.00

b. Carrying costs
Cost of capital ( 132.00 x 15%) P 19.80
Inventory insurance 3.00
Inventory tax ( 125.00 x 2%) 2.50
Total P 25.30

c. Ordering costs
Shipping permit P 300.00
Processing costs 23.00
Unloading 90,00
Total P 413.00

TRUE/FALSE
1. True 6. False 11. True
2. False 7. False 12. False
3. False 8. False 13. False
4. True 9. False 14. False
5. True 10. True 15. False

Multiple choice
1, a 6. b 11. a 16. d 21. d 26. a
2, b 7. b 12. a 17. b 22. c 27. a
3, d 8. a 13. c 18. b 23. b 28. b
20

4, a 9. c 14. c 19. a 24. c 29. d

5, c 10. b 15. d 20. b 25. d 30. d