Illustrative Problem : Recording Material Transactions

The Northern Consolidated Company has the following balance of Materials as of January 1,
2019.

Materials P 4,900

Material A - 600 units at P5.00 3,000

Material B - 350 units at P4.00 1,400

Indirect materials 500

The materials transaction for the month of January, 2019 are as follows:

1. Purchases for the month of January - Material A - 600 units at P5.50; Material B - 800 units
at P5.00; Indirect materials - P700. Paid cash of P970 for separate shipping costs of the
materials purchased.

2. Materials requisitioned and issued on a FIFO basis amounted to P7,000. Material A, 200
units (charged to Job 101); Material A, 600 units and Materials B, 225 units (charged to Job
102); Material B, 425 units (charged to Job 103). Indirect materials amounted to P1,000.

3. Material B returned to vendors, 70 units at P5.00.

Solution:

Perpetual Periodic
1 Materials 8,000 Purchases 8,000
Accounts Payable 8,000 Accounts Payable 8,000
Materials 970 Freight-In 970
Cash 970 Cash 970
2 Work-in Process 7,000 (an entry shall be made at the end of the
period to
Factory Overhead Control 1,000 reconcile the inventory account to cost of
goods sold
Materials 8,000 and finished goods)
3 Accounts Payable 350 Accounts Payable 350
Materials 350 Purchase returns 350

Your task: Determine the ending balance of Materials account at the end of January 2019.
Discuss how the cost of ending balances are accounted or computed, both in perpetual and
periodic inventory system.