MODCOS1

ACCOUNTING FOR RAW MATERIALS

2nd Term 2017-2018

I. Control for Materials

Objectives
i. To provide adequate supply for efficient and uninterrupted operation
ii. To maintain minimum investments in materials and supplies
iii. To avoid loss of time and cost of handling
II. Source Documents
a. Materials Requisition Slip
b. Purchase Requisition
c. Purchase Order
d. Receiving Report
III. Purchasing Issues
a. Purchase Price and Cost
b. Discounts
i. Quantity or Trade Discounts
ii. Cash Discounts
1. When Taken Method (Gross Method)
2. When not taken method (Net Method)
c. Purchase Returns
d. Freight-In
i. Recording
1. Direct Charging (included in the raw materials)
a. Relative Peso Value Method
b. Relative Weight Method
2. Indirect Charging (included in factory overhead)
IV. Spoiled materials
a. Charged to specific job
b. Charged to all production
V. Defective Materials
a. Charged to specific job
b. Charged to all production
VI. Scrap Materials
a. Traced to a specific job
b. Not traceable to a specific job
c. From factory supplies/indirect materials
Problem 1 – Discounts
Sunn y Compan y received quotations from two entities for an item of merchandise as follows:
From Company X: List price P500,000, less a trade discount of 20-10-10, FOB
shipping point, 2/10, n/30.
From Company Y: List price P500,000, less a trade discount of 35, FOB shipping
point, 2/10, n/30.

Required:
For each quotation, compute the invoice amount and the am ount to be paid b y the buyer
within the discount period.
_________________________________________________________________________________________________________
Problem 2 – Discounts
MB Company regularl y bu ys merchandise from JL Suppliers and is allowed a trade discount
of 20/10/10 from the list price. For the month of September, MB Company purchased
merchandise with a list price of P200,000 and terms of 3/10, n/30.

Compute the follow ing:

1. The amount debited to Materials if purchases recorded at gross.
2. The amount debited to Materials if the purchases recorded at net.
_________________________________________________________________________________________________________
Problem 3 – Discounts
On June 1, Morales Corporation purchase materials listed at P700,000 while receiving a
trade discounts of 10%, and 5%, while the credit term is 5/10, n/30.

Required:
Journal entries to record the purchase and payments assuming
a. Full pa yment is made on June 9.
b. Full pa yment is made on June 30 using the following:
1. Gross Method
2. Net Method
_________________________________________________________________________________________________________
Problem 4 – Freight
An invoice for A, B, and C is received from Harp Corp. Invoice totals are A - P11,250; B -
P13,500; and C - P15,750. The frei ght charges on this shipment of 18,000 pounds total
P1,620. Weights for the respective materials are 4,500, 6,000, and 7,500 pounds
respectivel y.

Compute the follow ing:

1. Entry to record the purchase of materials and freight using:
a. Direct chargin g method.
b. Indirect charging method.
2. Cost per pound to be entered on the stock cards for each material based on cost.
3. Cost per pound to be entered on the stock cards for each materials, based on shipping
weight.
____________________________________________________________________________________________________________
Problem 5 – Spoiled Units
Winter Compan y is a manufacturer of golf clothing. During the month, the company cut and
assembled 8,000 golf jackets. One hundred of the jackets did not meet specifications and
were considered “seconds”. Seconds are sold for P 80.00 per jacket, whereas first qualit y
jackets sell for P400. During the month, Work-In Process was charged for a total of
P1,620,000: P460,000 for materials, P580,000 for labor, and P580,000 for factory overhead.

Required:
Entries required for each of the following conditions:
1. Loss due to spoiled work is spread over all jobs.
2. Loss due to spoiled work is charge to a specific job.
_________________________________________________________________________________________________________
Problem 6 – Defective Units
Yu Co. manufactures gold carts and other recreational equipment. One order for NG
Corporation for 2,000 carts showed the followin g costs per unit: direct materials - P40:
direct labor P20: and factory overhead applied at 140% of direct labor cost if defective work
is charged to a specific job and 150% if defective work is charged to all jobs.

Final inspection revealed that wheels were assembled with improper bearin gs. The wheels
were disassembled and the proper bearings inserted. The cost of correcting each defective
cart consists of P2 added cost for bearings, P4 for labor and factory overhead at the
predetermined rate.

Required:
A. Prepare journal entries to record correction of the defective units and transfer of the
work in process to finished goods if:
1. Charge to specific job.
2. Charge to all production.
B. Compute the cost per unit of finished goods if:
1. The NG is to be charged with the cost of defective units.
2. The cost of correcting the defective units is not charged to NG.
_________________________________________________________________________________________________________

Problem 7

Chapter 18 – more exercise to solve for spoilage, rework and scrap.