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5. Issuance of direct materials pays per box is P10.
Work in Process xxx Cost of carrying one box is estimated at
Materials xxx P2 per year while ordering costs are
6. Issuance of indirect materials estimated at P20.
Factory OH-C xxx
Materials xxx Required:
7. Return of excess materials 1) Determine the Economic Order
Materials xxx Quantity for the boxes.
Work in Process xxx 2) Determine the annual inventory cost if
it orders at EOQ, at 115 units and 120
IV. ACCOUNTING FOR SPOILED UNITS units.
Spoiled units – unacceptable units discarded
or sold for it salvage value Answers:
1. Charged to the specific job (2)(700)(20)
1. EOQ = √ = 118 units per order
Spoiled Goods xxx 2
Work in Process xxx Ordering Costs (700/118x20) =118.64
2. Charged to all production Carrying Costs (118/2x2) =118.00
Spoiled Goods xxx Total Costs 234.64
Factory OH-C xxx 2. @ 115 units
Work in Process xxx Ordering costs (700/115*20) =121.74
Carrying costs (115/2*2) =115.00
V. ACCOUNTING FOR DEFECTIVE UNITS Total costs 236.74
Defective units – unacceptable but @ 120 units
correctable units and can be sold as good units Ordering costs (700/120*20) =116.67
or irregulars Carrying costs (120/2*2) =120.00
1. Charged to specific job Total costs 236.67
Work in Process xxx
Materials xxx Problem 2
Payroll xxx Using the FIFO method, calculate the
Factory OH-A xxx ending inventory and cost of goods sold
2. Charged to all production based on the information below.
Factory OH-C xxx
Materials xxx
Payroll xxx
Factory OH-A xxx
Questions
1. _______ is a form prepared by the Answers:
purchasing agent and sent to the vendor
to obtain materials.
Answer: Purchase Order
Problem 1
Assume that a local shoe store is trying to
figure out how many boxes to order.
The store feels it will sell approximately 700
boxes in the next year at a price of P15 per