1.

A retailer importer goods at a cost of P260,000, including P40,000 import

duties and P20,000 non-refundable purchase taxes. The risks and rewards
of ownership of the imported goods were transferred to the retailer upon
collection of the goods from the harbour warehouse. The retailer was
required to pay for the goods upon collection. The retailer incurred P10,000
to transport the goods to its retail outlet and a further P4,000 in delivering
the goods to its customer. Further selling costs of P6,000 were incu rred in
selling the goods. What amount should the inventory be valued?
P270,000

2. The following information appears in John Company’s records for the year
ended December 31, 2019:

Inventory, January 1, P325,000; Purchases, P1,150,000; purchase returns,

P40,000; Freight in, P30,000; Sales, P1,700,000; Sales discounts,
P10,000; Sales returns, P15,000 of which P5,000 was refunded.

On December 31, the company conducted a physical inventory which

revealed that the ending inventory was only P210,000. John’s gross profit
on net sales has remained constant at 30% in recent years. John suspects
that some inventory may have been pilfered by one of the company’s
employees. How much is the estimated cost of missing inventory on
December 31?
P72,000

3. At December 31, 2019, the following information was available from Empire
Co.’s accounting records:

Cost Retail
Inventory, January 1, 2019 P 220,500 P 304,500
Purchases 1,276,380 1,732,500
Additional markups 63,000
Available for sale P 1,496,880 P2,100,000

Sales for the year totaled P1,659,000. Markdown amounted to P21,000.

What is the cost of Empire’s inventory at December 31, 2019 under the
average cost method? P302,400
 4. Inventories are assets (choose the incorrect one)
Held for use in the production or supply of goods and services.

5. What is meant by the term “FOB destination” but shipped “freight collect”?
the ownership of goods purchased is vested in the buyer upon receipt and
the freight charge is paid by the buyer
6. These are assets held for sale in the ordinary course of business, in the
process of production for such sale or in the form of materials or supplies to
be consumed in the production process or in the rendering of services.
Inventories

7. Aman Company provides the following data with respect to its inventory
Items counted in the bodega 4,000,000
Items included in the count specifically segregated per sale 100,000
contract
Items in receiving department, returned by customer, in good 50,000
conditon
Items ordered and in receiving department, invoice not 400,000
recevied
Items ordered, invoice received but goods not received. 300,000
Freight is on account of seller.
Items shipped today, invoice mailed, Fob shipping point 250,000
Items shipped today, invoice mailed, FOB destination 150,000
Items currently being used for window display 200,000
Items on counter for sale 800,000
Items in receiving department refused by Aman Company 180,000
because of damage
Items included in count,damaged and unsalable 50,000
Items in shipping department 250,000

What is the correct amount of inventory : 5,700,000

8. Lunar Company included the following items under inventory.
Materials 1,400,000
Advance for materials ordered 200,000
Goods on process 650,000
Unexpired insurance on inventory 60,000
Advertising catalogs and shipping cartons 150,000
Finished goods in factory 250,000
Finished goods in entity-owned retail store, including 750,000
50% profit on sales
Finished goods in hands of consignees including 40% 400,000
profit on sales
Finished goods in transit to customers, shipped FOB 250,000
destination at cost
Finished goods out on approval, at cost 100,000
Unsalable finished goods, at cost 50,000
Office supplies 40,000
Materials in transit, shipped FOB shipping point, 330,000
excluding freight of P30,000
Goods held on consignment, at sales price, cost 200,000
P150,000

What is the correct inventory? 5,500,000

9. The primary objective of inventory accounting is:

to match appropriate costs against revenues in order there may be a proper
determination of income.
10. Which of the following is not an inventory?
land held for resale
11. As a rule, goods are included in the inventory of a buyer when:
there is an actual delivery of goods by the seller.
12. Which of the following items is not includible in the inventory?
goods in transit and purchase FOB destination
13. Blonde Company’s budgeted sales and budgeted cost of sales for the
coming year are P14.4 million and P9 million, respectively. Short-term
interest rates are expected to average 15%. If the company can increase
inventory turnover form its present level of nine times a year to a level
times a year, its cost savings in the coming year would be?
P37,500

14. In assessing the loan value of inventory, a banker will normally be

concerned about the portion of inventory that is work-in-process because?
WIP generally has the lowest marketability of the various types of
inventories.

15. Indicate whether the following statements are true or false.

Statement 1 – The cost of warehousing and storage, property taxes, insurance

of inventory, losses from spoilage are examples of ordering
costs.

Statement 2 – One of the relevant costs in inventory management is “carrying

cost” which refers to the total effect of the failure of a company to service
customers or conduct manufacturing operations smoothly because goods, raw
materials and/or suppliers are out of stock.

False False

16. Identify the following statements as true or false.

Statement 1 – The primary role of the accountant in inventory management

is deciding which Inventory to buy and how much to buy.

Statement 2 – The economic order quantity model may be used to

determine the optimum time to acquire inventory.

False False
17. Which of the following would not be included in merchandise inventory for a
purchasing company?
Goods in transit shipped FOB destination.
18. When the seller advances the transportation costs and the terms of sale
are FOB shipping point, the seller records the payment of the transportation
costs by debiting
Accounts receivable.
19. Which of the following is not considered in computing net cost of
purchases?
Transportation cost paid on goods shipped to customers

20. FOB shipping point means

title passes at shipping point; buyer pays transportation cost

21. The Van Brocklin Company manufactures one style of long, tapered wax candle,
which is used on festive occasions. Each candle requires a two-foot-long wick
and one pound of a specially prepared wax. The wick and melted wax are placed
in molds and allowed to harden for twenty-four hours. Upon removal from the
molds, the candles are immediately dipped in a special coloring mixture that
gives a glossy lacquer finish. Dried candles are inspected, and all defective ones
are pulled out. Because the coloring mixtures penetrate into the wax itself, the
defective candles cannot be salvage for reuse. They are destroyed in a
incinerator. Normal spoilage is regarded as 3% of the number of candles that
pass inspection.

Cost and production statistics for a certain week follows:

Direct materials requisitioned (including wicks and wax)

P33,400 ;Direct labor and overhead cost (applied at a constant the during the
hardening process:

12,360 ;Total cost: P45,760

During the week, 7,800 candles were completed: 7,500 passed inspection, and
the remainder were defectives. At the end of the week, 550 candles were still in
the molds; they were considered 80% complete. There was no beginning
inventory.

Determine the abnormal spoilage cost charged to factory overhead control.

P412.50
22. In a job order costing system, the net cost of normal spoilage is equal to:
 the cost of spoiled work minus the estimated disposal value.
23. Tope Company manufactures electrical drills to the exact specifications of
various costumers. During April 2018, Job 403 for the production of 1,100 drills
was completed at the following costs per unit: P31.5
24. A unit that is rejected at a quality control inspection point, but that can be
reworked and sold, is referred to as a: defective unit.
25. Simpson Company manufactures electrical drills to the exact specifications of
various costumers. During May 2018, Job 404 for the production of 1,100 drills
was completed at the following costs per unit:
Direct materials: P 10
Direct labor :8
Applied factory overhead: 12
Total: P 30
Final inspection of Job 404 disclosed 50 defective whiche were reworked at a total
cost of P500. What would be the unit cost of the good units produced on Job 404?
P30.45

26. Which of the following companies would be most likely to use a perpetual
inventory system? Car dealer
27. Under the perpetual inventory system, in addition to making the entry to record a
sales return, a company would: debit Merchandise inventory and credit
Cost of goods sold.
28. Under the perpetual inventory system, the entry to record a sales return would
include a debit to: Merchandise inventory
29. Which of the following companies would be most likely to use a perpetual
inventory system? Car dealer
30. Under the perpetual inventory system, in addition to making the entry to record a
sales return, a company would
debit Merchandise inventory and credit Cost of goods sold
31.) Under the perpetual inventory system, the entry to record a sales return
would include a debit to: Merchandise inventory.
1.
32.) The Cindy Fashion uses about 200,000 yards of a particular fabric each
year. The fabric costs P150 per yard. The current policy is to order the
fabric 8 times a year. Incremental ordering costs are about P900 per order,
and incremental carrying costs are about P0.75 per yard, much of which
 represents the opportunity cost of the funds tied up in inventory. How much
total annual cost s are associated with the current inventory policy ? P16,575

33.) The inventory technique that identifies the determination of the lead
time quantity upon which the next order should have punctually placed:
EOQ: Red-line technique

34.) In the two-bin system, the quantity in the second bin is equal to the:
OPTIMAL SAFETY STOCK

35.) The inventory technique that identifies the determination of the lead
time quantity upon which the next order should have punctually placed:
EOQ

36.) Assume that a company plans a reduction in work in process levels of

50% and has an annual inventory carrying cost of 20% and a past a verage
cost of work in process of P70,000. The 50% reduction in work in process
would be expected to produce annual savings of:
7,000

37.) A company that manufactures a single product uses backflush costing.

At the beginning of the period, there were no inventories. During the period,
40,000 units were produced, of which 39,000 were sold. The standard unit
direct materials and conversion costs for the period were P30 and P18,
respectively. The actual unit direct materials and conversion costs for the
period were P29 and P20, respectively. Furthermore, any under- or
overapplied conversion cost is not prorated between cost of goods sold and
finished goods but materials price variances are recognized. Materials
efficiency variances should be disregarded. The following additional
information is also available for the period:

Direct materials purchased (actual cost of materials

sufficient to produce 42,000 units) 1,218,000
Direct materials used (standard cost) 1,200,000
Conversion costs incurred (actual cost) 800,000

Assume the company’s backflush accounting system records the purchase of

direct materials and the completion and sale of finished goods. The entry to
record finished goods is
Finished goods control 1,960,000
Raw and in-process inventory control 1,160,000
Conversion costs applied 800,000

38.) The costing system appropriate to use with a JIT inventory system whose
costs flow directly to cost of goods sold is
BACKFLUSH COSTING

39.) The underlying philosophy of “just-in-time” inventory system is?

It is a quest toward continuous improvement in the environmental
conditions that necessitate inventories

40.) Companies that adopt just-in-time purchasing system often experience?

A reduction in the number of suppliers
41. The following information are given with respect to product Cute of Smile
Corporation in 2018:

Optimal production run in units 2,000

Average inventory in units 1,000
Number of production runs 5
Cost per unit production P75
Desired annual return on inventory investment 18%
Set-up cost per production run P5,000

If the units will required evenly throughout the year, the total annual relevant costs
using the economic-order-quantity approach is:
P 50,000

42. The carrying cost associated with inventory management includes?

Storage costs, handling costs, interest on capital invested, and
obsolescence

43. The order costs associated with inventory management include?

Purchasing costs, shipping costs, setup costs, and quantity discounts lost

With regards to inventory management, an increase in the frequency of ordering

will normally? Reduce the total carrying costs
An example of a carrying cost is? Spoilage

Which one of the following would not be considered a carrying cost associated with
inventory? Shipping costs

The production department of a manufacturing company has been plagued with

excessive number of defective units of standards machine parts that are purchased
from vendors on a regular basis. The most relevant quantitative management
technique for designing a formal inspection system for incoming parts is: Statistical
quality control

Jeff Company sells 20,000 radios evenly throughout the year. The cost of carrying
one unit of inventory for one year is P8, and the purchase order cost per order is
P32. What is the economic order quantity? 400

The China Tee Store sells 100,000 tea bags a year. Additional data are presented
below:
1. Selling price per bag P2.50
2. Purchase cost per bag P1.50
3. Ordering cost: P5.40 an order
4. Carrying cost: 20% of unit cost
5. Number of days the company operates in a year: 250
6. Average lead time on purchases: 6 days

What is the reorder point if the company will keep a 10-day safety stock of
inventory? 6,400 bags.

Felix Company sells 200 units of discs per week. Purchase order lead -time is 3 weeks
and the economic order quantity is 450 units. What is the reorder point?

600 units.

The costs of stock-out do not include: Depreciation and obsolescence

When a specific level of stock is carried for an item in inventory, the average inventory level for that
item is? Increase by the amount of the safety stock

Scholas Company uses 840,000 units of component R4 in manufacturing P444 over a 300-day work year.
The usual lead-time for the part is six days, however at times, the lead time has gone high as eight days.
Scholas now desires to adjust its safety stock policy. The increase in safety stock size is: 5,600 units
For a 300-day work year Kulasa Corp. consumes 420,000 units of an inventory item. The usual lead-time
for the inventory item is six (6) days; however, at times, the lead-time has gone high as eight (8) days.
Kulasa now desires to adjust its safety stock policy. The likely effect on stockout costs and carrying costs,
respectively, would be?
Decrease and increase

Each stockout of Product AX sold by Axiom Inc. costs P8,750 per occurrence. The carrying cost
per unit of inventory is P250 per year, and the company orders 1,500 units of prod uct 24 times
a year at a cost of P5,000 per order. The probability of stockout at various levels of safety stock
is:

Units of safety stock Probability of stockout

0 .50
100 .30
200 .14
300 .05
400 .01

The optimal safety stock level for the company is? 200 units

For a 300-day work year Kulasa Corp. consumes 420,000 units of an inventory item. The usual
lead-time for the inventory item is six (6) days; however, at times, the lead -time has gone high
as eight (8) days. Kulasa now desires to adjust its safety stock policy. The likely effect on
stockout costs and carrying costs, respectively, would be: Decrease and increase.

Each stockout of Product AX sold by Axiom Inc. costs P8,750 per occurrence. The carrying cost
per unit of inventory is P250 per year, and the company orders 1,500 units of pr oduct 24 times
a year at a cost of P5,000 per order. The probability of stockout at various levels of safety stock
is:

Units of safety stock Probability of stockout

0 .50
100 .30
200 .14
300 .05
400 .01

The optimal safety stock level for the company is? 200 units
The costs of stock-out do not include: Depreciation and obsolescence.

The Van Brocklin Company manufactures one style of long, tapered wax candle, which is
used on festive occasions. Each candle requires a two-foot-long wick and one pound of a
specially prepared wax. The wick and melted wax are placed in molds and allowed to harden
for twenty-four hours. Upon removal from the molds, the candles are immediately dipped in
a special coloring mixture that gives a glossy lacquer finish . Dried candles are inspected, and
all defective ones are pulled out. Because the coloring mixtures penetrate into the wax
itself, the defective candles cannot be salvage for reuse. They are destroyed in a
incinerator. Normal spoilage is regarded as 3% of the number of candles that pass
inspection.

Cost and production statistics for a certain week follows:

Direct materials requisitioned (including wicks and wax) P33,400

Direct labor and overhead cost (applied at a constant the
during the hardening process 12,360
Total cost P45,760
During the week, 7,800 candles were completed: 7,500 passed inspection, and the
remainder were defectives. At the end of the week, 550 candles were still in the molds; they
were considered 80% complete. There was no beginning inventory.
Determine the abnormal spoilage cost charged to factory overhead control.
P412.50

Aurora Corporation uses a job order cost system and has two production departments, L
and O. Budgeted manufacturing costs for Year 1 are as follows:
Dept. L Dept. O
Direct materials P700,000 P100,000
Direct labor 200,000 800,000
Manufacturing overhead 600,000 400,000

The actual material and labor costs charged to Job No. 123 in Year 1 were as follows:

Direct materials P 25,000

Direct labor
 Dept. L P 8,000
Dept. O 12,000 20,000

Aurora applies manufacturing overhead to production orders on the basis of direct labor
cost using departmental rates predetermined at the beginning of the year based on the
annual budget.

The total manufacturing cost associated with Job No. 123 for Year 1 should be

P75,000