ACC 122: Cost Accounting and Control

Student Activity Sheets Module # 3

Name: Class number:

Section: Schedule: Date:

Lesson title: Job-order: Direct Materials, part 1 Materials:

Lesson Objectives: Textbook, SAS, & calculator
At the end of this module, I should be able to References:
1. Recognize the two basic aspects of material control and Cabrera; Cost Accounting & Control;
specify the internal control procedures. 2018-2019 Edition
Hansen & Mowen; Cost Accounting &
2. Account for material cost flow methods. Control; 2019 Edition
Vanderbeck, Edward J.; Principles
of Cost Accounting; 15th edition
Brewer, Garisson & Noreen;
Introduction to Managerial Accounting;
7th edition

Productivity Tip:
Start with a big smile!  Organize your study place before going through with the
activities.
A. LESSON PREVIEW/REVIEW

1) Activity 1 : Introduction/Review (10 mins)

Hello there!  Do you still remember what you learned last time? Let’s just have a quick recap.
Encircle the best answer and let’s see if your memory is sharp. Check if you got it right under the Key to
Corrections part at the end of this module. You may start.

A 1.Cost accounting differs from financial accounting in that financial accounting:

a. Is mostly concerned with external financial reporting.
b. Is mostly concerned with individual departments of the company.
c. Provides the additional information required for special reports to management.
d. Puts more emphasis on future operations.
A 2. Actual costing and normal costing have the same directs costs.
e. True
f. False
B 3. Standardized products are accounted for using
g. Job-order costing
h. Process Costing
i. Operation Costing
j. None of the above
D 4. It is defined as the tracing of direct costs and allocating indirect costs to cost objects.
k. Cost driver
l. Cost accumulation
m. Cost measurement
n. Cost assignment
A 5. A firm that produces the following characteristics of product which are intangibility, inseparability,
heterogeneity, and perishability is a
o. Service
1
 Name: Class number:
Section: Schedule: Date:

p. Merchandising
q. Manufacturing
r. None of the above

2) Activity 2 (LO1 & LO2): What I Know Chart, part 1 (5 mins)

Alright! Let’s see what you already know, answer the first column (What I know). Leave the third column
(What I Learned) blank at this time.

What I Know Questions What I Learned (Activity 5)

1. What are the controls needed  Physical and
I have no idea for materials?  Control over the
investment
2. What are the internal control  Effective cost control
I have no idea procedures? system
 Basic Aspects of Materials
Control
 Order Point
3. Identify the three cost flow specific cost; average cost; first‐in,
I have no idea methods. first‐out (FIFO); and last‐in, first‐out
(LIFO)

B. MAIN LESSON
1) Activity 3 (LO1 & LO3): Content Notes (40 mins)

Make sure to highlight or underline the important parts!

TOTAL COSTS OF A MANUFACTURING FIRM

MANUFACTURING (PRODUCT) COST NON-MANUFACTURING (PERIOD)

Prime Cost Manufacturing Overhead COST
Indirect
Direct Direct Indirect Indirect Administrative
Manufacturing Selling Expenses
Materials Labor Materials Labor Expenses
Expenses
Materials: Conversion Cost
Direct materials – those material which are easily identified, conveniently measured and directly charged to the cost of
production. Also known as “raw materials”. Timber would be a direct material in the production of furniture.
Indirect materials - those materials which cannot be conveniently identified & allocated to the cost center or cost unit. The
cost is included in the manufacturing overhead. In furniture production, wood,
Name: Class number:
Section: Schedule: Date:

Cost Materials Issued Computation

Beginning Balance PHP 2,000.00 100 units x P20
Add: Purchases PHP 1,060.00 640+420
Less: Ending Inventory PHP 760.00 Refer to the table
Cost Materials Issued PHP 2,300.00 Beg. Inventory + Purchases - Ending Inventory

Under the three cost flow method, FIFO method is the only method that will produce the same result
(cost of materials used and ending inventory) at all times under the periodic and perpetual system.

Activity 4: Skill-building Activities (70 mins) SCORE:

Let’s try to practice what you have learned! Check your answers against the Key to Corrections found
at the end of this SAS. Write your score on the space provided.

Part I (LO1): Control of Materials. Choose the best answer for the given question.

1. D An effective cost control system should include:

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

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

a. Limited access.
b. Combination of duties.
c. Safety stock.
d. None of these are correct.

3. The Hotdog Company predicts that 3,200 units of material will be used during the year. The expected daily
usage is 15 units, there is an expected lead time of 10 days, and there is a safety stock of 200 units. The
material is expected to cost P4 per unit. It is estimated that it will cost P25 to place each order. The
annual carrying cost is P1 per unit.

Requirements:
a. Compute the order point.
b. Determine the most economical order quantity by use of the formula.
c. Compute the total cost of ordering and carrying at the EOQ point.

ANS:

(a) Order point = Expected usage during lead time + Safety stock
= ( 15 units x 10 days) + 200
= 350 units
Name: Class number:
Section: Schedule: Date:

(b)
EOQ = 2 x Order Costs x Annual Demand
Annual carrying cost per unit

EOQ = 2 x25 x300

EOQ = 400 units

(c) Annual ordering cost = Number of orders x Cost per order

= Annual usage
X cost per order
EOQ

= 3200Annual usage X 25 cost per order

400 EOQ

= 8 x 25

= 200

Annual carrying cost = Average inventory x Carrying cost per unit

Average inventory = (1/2 x EOQ) + Safety Stock

= (1/2 x 400 ) + 200 = 400

Annual carrying cost = 400 x1 = 400

PART II (LO1): Internal Control Procedures

Match the materials control form in the left column with the person responsible for its
preparation in the right column. (A selection may be used more than once.)

a. Purchase requisition 1. Production department supervisor

b. Purchase order 2. Storeroom keeper
c. Receiving report 3. Purchasing agent
d. Materials requisition 4. Receiving clerk
e. Debit-credit memo 5. Accountant
Name: Class number:
Section: Schedule: Date:

PART III (LO2): Cost Flow Method

The materials account of Tina Company reflected the following changes during May:

Balance, May 1 500 units @ P10

Received, May 5 300 units @ P12
Issued, May 10 400 units
Received, May 15 200 units @ P15
Issued, May 25 300 units

Using the back page of this activity sheet or in a separate paper, calculate the ending inventory at May
31 and the cost of the units issued in May using each of the following methods:
(a) First in, first out (FIFO)
(b) Last in, first out (LIFO)
(c) Moving average

2) Activity 5: What I Know Chart, part 2 (5 mins)

It’s time to answer the questions in the “What I Know Chart” in Activity 2. Write your answers in
the “What I Learned” column. Let’s see your improvement!

3) Activity 6 (LO1 & LO2): Check for Understanding (60 mins)

To better test your knowledge on the topic, answer the given four problems to enhance your learning. To
check if you got it right, your teacher will provide you the correct answer.

Problem 1
Lanztech Company expects daily usage of 500 pounds of material Inca, an anticipated lead time of
seven days, and a desired safety stock of 2,500 pounds.

a. Determine the order point.

b. Determine the number of pounds to be issued from safety stock if the new order is four days late.
ANSWER:
a. 500 lbs. x 7 days...............3,500 lbs.
Required safety stock.......2,500
Order point........................6,000 lbs.
b. 500 lbs. x 4 days =...........2,000 lbs.

Problem 2
Pet Company predicts that it will use 360,000 gallons of material during the year. The material is
expected to cost P5 per gallon. Patriot anticipates that it will cost P72 to place each order. The annual
carrying cost is P4 per gallon.

a. Determine the most economical order quantity by using the EOQ formula.
b. Determine the total cost of ordering and carrying at the EOQ point.
a. EOQ =

2  $72
=
360,000
$4
$51,840,
= 000
$4
=
12,units
= 3,600 960,
000
b. 360,000 units (annual usage)  3,600 units (per order) = 100 orders
Ordering cost: 100 orders @ P72 per order............................................. P 7,200
Carrying cost: (3,600 units  2) @ P4.00 per unit .................................... 7,200
Total order and carrying cost..........................................................................P14,400

Problem 3 (Multiple Choice)

C 1. The personnel involved in the physical control of materials includes all of the following
except the:
a. Purchasing agent.
b. Receiving clerk.
c. Cost accountant.
Name: Class number:
Section: Schedule: Date:

d. Production department supervisor.

C 2. The form prepared by the purchasing agent and sent to the vendor to obtain materials is
known as a:
a. Materials requisition.
b. Purchase requisition.
c. Purchase order.
d. Vendor's invoice.

A 3. The form that serves as authorization to withdraw materials from the storeroom is
known as the:
a. Stores requisition.
b. Purchase order.
c. Purchase requisition.
d. Returned materials report.

D 4 The form used to notify the purchasing agent that additional materials are needed is
known as a:
a. Purchase order.
b. Vendor's invoice.
c. Receiving report.
d. Purchase requisition.

Problem 4
Use the following information for the next five questions

The Benson Corporation uses Raw Material A in a manufacturing process. Information as to balances
on hand, purchases, and requisitions of Raw Material A is given in the following table.

Raw Material A

D 1. If a perpetual inventory record of Raw Material A is maintained on a FIFO basis, the

Name: Class number:
Section: Schedule: Date:

September 6 issue will consist of:

a. 10 units @ P1.40, 80 units @ P1.55 and 20 units @ P1.62.
b. 50 units @ P1.40 and 60 units @ P1.55.
c. 110 units @ P1.55.
d. 50 units @ P1.55 and 60 units @ P1.62.

A 2. If a perpetual inventory record of Raw Material A is maintained on a LIFO basis, the

September 6 issue will consist of:
a. 80 units @ P1.55, 20 units @ P1.62 and 10 units @ P1.40.
b. 110 units @ P1.55.
c. 50 units @1.55 and 60 units @ 1.62.
d. 20 units @ P1.62 and 90 units @ P1.55.

C 3. If a perpetual inventory record of Raw Material A is maintained on a FIFO basis, 200 units
on hand on August 18 will consist of:
a. 100 units @ P1.40, 80 units @ P1.55 and 20 units @ P1.62.
b. 100 units @ P1.55 and 100 units @ P1.62.
c. 150 units @ P1.62 and 50 units @ P1.55.
d. 200 units @ P1.55.

C 4. If a perpetual inventory record of Raw Material A is maintained on a LIFO basis, the 200
units in inventory at August 18 will consist of:
a. 50 units @ P1.62 and 150 units @ P1.55.
b. 100 units @ P1.40 and 100 units @ P1.55.
c. 20 units @ P1.62, 80 units @ P1.55 and 100 units @ P1.40.
d. 100 units @ P1.40, 60 units @ P1.55 and 40 units @ P1.62.

C 5. If a perpetual inventory record of Raw Material A is maintained on a moving average basis,

the 330 items in inventory on June 11 will have a unit cost of:
a. P1.51.
b. P1.5233.
c. P1.4856.
d. P1.5125.

C. LESSON WRAP-UP

1) Activity 7: Thinking about Learning (10 mins)

1. Work Tracker
You are done with this session! Let’s track your progress. Shade the session number you just
complete