RUSSEL G.

GAYARES
BSA1-A

Problem 1 - Norman Company

2 x 64,000 x 40
a) EOQ =
2

= 1,600 units

Required:
1. Determine the most economical order quantity.

Ordering cost = No of orders x ordering cost

64,000
= x 40
1,600

= 1,600

2. Determine the (a) total cost of ordering and (b) carrying at the EOQ point.

Carrying cost = Average inventory x 2

1,600
= x2
2

= 1,600

Problem 2 – Abner Company

Required:
1. Compute that economic order quantity.

2(number of units required anually)(cost of order)

EOQ =
carrying cost per unit

2 x 13,000 x 200
= 5.20
RUSSEL G. GAYARES
BSA1-A

5,200,000
= 5.20
= 1,000 units

2. Compute the number of orders in a year.

Annual requirements
Number of order in units = EOQ
13,000
= 1,000

= 13 orders
3. Compute the average inventory based on economic order quantity.

1,000
Average inventory based on EOQ = 2

= 500
4. Compute the total carrying cost and total ordering costs at economic order
quantity.

Total carrying cost = Average inventory x carrying cost/unit

= 500 x 5.20
= 2,600

Total ordering cost = No. of orders x ordering cost

= 13 x 200
= P 2,600

Problem 3 - Olive Corporation

Required:
1. Compute the economic order quantity.
EOQ = (2 x 16,000 x P15) / P3 = 400 units

Ordering cost
RUSSEL G. GAYARES
BSA1-A

Order size No. of orders Cost per order Ordering costs

6,400 2.5 P 15 P 37.50
1,600 10 15 150.00
400 40 15 600
200 80 15 1,200
100 160 15 2,400

Carrying costs
Average CCPU Carrying costs TRIC
inventory
3,200 P3 P 9,600 P 9,637.50
800 3 2,400 2,550.00
200 3 600 1,200.00
100 3 300 1,500.00
50 3 150 2,550.00

No. of orders = Annual demand / order size

Average inventory = Order size/ 2

Problem 4 – Heavyweight Co.

Required:
1. Compute the cost per pound to be entered on the stock cards for each
material, based on cost.
Product Invoice Percentage Share of Total Cost/pound
freight Cost
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 13.67
300,000 7,500 307,500

Percentage = 7,500/300,000

2. Compute the cost per pound to be entered on the stock cards for each
material, based on shipping weight.
Product Weight Fraction Share of Total Cost/pound
freight cost
RUSSEL G. GAYARES
BSA1-A

X 10,000 10,000/23,50 3,192 128,192 12.82

0
Y 6,000 6,000/23,500 1,915 79,915 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

Required:
1. Compute the amount debited to Materials if the purchase discount is treated
as other income. (Purchases recorded at gross).

Amount debited to Materials = 100,000 x 80% x 90% x 90% = 64,800

2. Compute the amount debited to Materials if the purchase discount is treated

as a reduction of purchases. (Purchases recorded at net).

Amount debited to Materials = 100000 x 80% x 90% x 90% x 98% = 63,504

Problem 6
Required:
1. Compute the cost of materials used and the cost assigned to the May 31
inventory using FIFO Method.
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
RUSSEL G. GAYARES
BSA1-A

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. Compute the cost of materials used and the cost assigned to the May 31
inventory using Average Method.

AVERAGE
Received Issued Balance
1 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

Problem 7- Bedrock Company

Required:
1. Provide journal entries on “loss due to spoiled work 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
RUSSEL G. GAYARES
BSA1-A

12,400,000−124,000
Unit cost = 10,000−100
= 1,240

2. Provide journal entries on “loss due to spoiled work charged to such specific
job” (FOH is applied at 100% of direct labor cost).

Work in process 11,600,000

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

Spoiled goods 100,000

Work in process 100,000

Finished goods 11,500,000

Work in process 11,500,000

11,500,000
Unit cost = 9,900
= 1,161.62

The increase in the units cost is due to the loss absorbed by the
remaining goods units computed as follow:
Cost (100 x 1,160) = 116,000
Selling price 100,000
Loss 16,000/9,900 = 1.62

Problem 8 – Kyralei Co.

Required:
1. Prepare journal entries to record correcting the defect and transfer of the
work in process to finished goods if:
A. RAGC Corporation is to be charged with the cost of the defective units.

Work in process 1,760,000

Materials (2,000 x 400) 800,000
Payroll (2,000 x 200) 400,000
RUSSEL G. GAYARES
BSA1-A

FO Applied (400,000 x 140%) 560,000

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

Finished goods 1,992,000

Work in process 1,992,000

B. The cost of correcting the defect is not charged to RAGC.

Work in process 1,800,000

Materials 800,000
Payroll 400,000
FO Applied (40,000 x 150%) 600,000

FO control 240,000
Materials 40,000
Payroll 80,000
FO Applied (80,000 x 140%) 120,000

Finished goods 1,800,000

Work in process 1,800,000

2. Compute the cost per unit of finished goods if:

A. RAGC Corporation is to be charged with the cost of defective units.

Original cost 2,000 units 1,760,000

Additional cost 232,000
Total cost 1,992,000
Divide by 2,000
Cost per unit 996.00
RUSSEL G. GAYARES
BSA1-A