Accounting For Materials: Group 3

ACCOUNTING
FOR MATERIALS
GROUP 3
ACCOUNTING SYSTEMS
FOR MATERIALS
2
PERIODIC INVENTORY SYSTEM
▰ No continuous record taken to

determine the inventory value.
▰ Requires a physical count for each
period
Purchases xx
Accounts Receivable xx
3
PERPETUAL INVENTORY SYSTEM
▰ Records real-time transactions of

received or sold stock.
▰ Considered a more efficient
method.
Materials Inventory xx
Accounts Receivable xx
4
COMMONLY USED
CONTROL PROCEDURES
5
CONTROL PROCEDURES
▰ Keeps expense within limits

▰ Encourage cost reduction
▰ Keeps smooth and uninterrupted
production
6
COMMON CONCEPTS IN A CONTROL SYSTEM
1. Inventory is the result of purchasing raw

materials and applying labor and factory
overhead to the finished goods.
7
2. Reduction of inventory is the result of

normal use and scrapping unneeded items.
8
3. Optimum inventory investment is based

on quantitative techniques, which are
designed to minimize cost.
9
4. Efficient purchasing, management &

investment in materials depend on accurate
forecast of sales and production schedule.
10
5. Forecasts help determine when to order

materials.
11
6. Inventory control is more than

maintaining inventory records.
12
7. Methods of inventory will vary depending

on cost of the materials and importance to
the manufacturing procedure.
13
COMMONLY USED CONTROL PROCEDURES
1. Order Cycling
2. Min-Max Method
3. Two-in method
4. Automatic Order System
5. ABC Plan
14
ORDER CYCLING
▰ Materials are reviewed on periodic

cycle
▰ Cycle length differ
▰ Order is place each review
15
MIN-MAX METHOD
▰ Material inventory has maximum

and minimum level.
▰ Min and Max level is determined
▰ Order is place when it reach min
level
16
TWO-BIN METHOD
▰ Used by non-expensive inventory

▰ Simple and uses minimum time
▰ Divided in 2 bins:
▻ 1st Bin: from receiving to order
▻ 2nd Bin: from order to delivery &
additional safety stock
17
TWO-BIN METHOD
Receive Order Delivery
ONE TWO
18
AUTOMATIC ORDER SYSTEM
▰ Used by most companies

▰ Order is place when it reach
predetermined order point quantity
▰ Uses Perpetually Inventory Record
Cards
19
ABC PLAN
▰ Used by companies with large

number of inventory
▰ Each inventory has different value
and has different control system
▰ It groups inventory.
20
MATERIAL CONTROL
21
MATERIAL CONTROL
▰ Systematic control over

purchasing, storing and using of
material.
▰ 2 basic aspects:
▻ Physical control (Safeguarding
Materials)
▻ Control of the Investment in
Materials
22
PHYSICAL CONTROL OF MATERIALS
▰ Effective physical control must

have:
▻ Limited access
▻ Segregation of duties
▻ Accuracy in recording
23
Controlling the
Investment in Materials
Planning the Materials Requirements
MATERIAL
CONTROL
Purchase price Associated Costs
Orderin Carryi
g ng
25
Planning the Materials Requirements
Total Ordering Cost = Total Carrying Cost
26
ECONOMIC ORDER QUANTITY
▰ Ideal order quantity a company should purchase

to minimize inventory costs.
TOC = TCC
Where:
𝑅𝑈 𝐸𝑂𝑄 RU = annual required units
x CO = x CC X CU CO = cost per order
𝐸𝑂 𝑄 2 CU = cost per unit of material
CC = carrying cost percentage

EOQ =
27
Formulas:
Number of orders placed annually =

𝑅𝑈
𝐸𝑂 𝑄
𝑅𝑈
𝑥𝐶𝑂
Annually ordering cost =
𝐸𝑂𝑄
𝐸𝑂𝑄
Average number of units =
2
Annual carrying cost = 𝐶
𝑈 𝑥 𝐶𝐶 𝑥 𝐸𝑂𝑄
2
28
ECONOMIC ORDER QUANTITY
To illustrate the use of the EOQ formula, assume an

annual requirement of 2,400 units, a cost per unit
of $.75, an ordering cost of $20 per order, and a
carrying cost percentage of 20%.
Applying the formula to these data, the EOQ is:
29
Sample Problems: Economic Order Quantity
Stevenson Company estimate that it will need 12,000

units of Material B next year, at a cost of $9 per unit. The
estimated carrying cost is 20%, and the cost to place an
order is calculated to be $16.
Required:
(1) Compute the economic order quantity.
(2) Compute the economic order quantity if forecast usage is
changed to 8,000 and the carrying cost percentage is 22%.
30
Sample Problems: Economic Order Quantity
ANSWERS:
1)
2)
31
QUANTITY
DISCOUN
TS
32
QUANTITY DISCOUNTS
ILLUSTRATION:
Suppose the annual usage of an item is 3,600 units
costing $1 each, with no quantity discount
available; the carrying cost is 20 percent of the
average inventory investment; and the cost to
place an order is $10. The EOQ is:
33
QUANTITY DISCOUNTS
Now assume the following quantity discounts

become available:
Order Size Quantity Discount
3,600 units 8%
1,800 6
1,200 5
900 5
720 4.5
600 4
34
Number of Orders per Year
1 2 3 4 5 6
List price per unit $1 $1 $1 $1 $1 $1
Quantity discount 8% 6% 5% 5% 4.5% 4%
Discount price per unit .92 .94 .95 .95 .955 .96
Size or order in units 3,600 1,800 1,200 900 720 600
Average inventory in units 1,800 900 600 450 360 300
Cost of average inventory $1,656.00 $846.00 $570.00 $427.50 $343.80 $288.00
Annual cost of materials (a) $3,312.00 $3,384.00 $3,420.00 $3,420.00 $3,438.00 $3,456.00
Carrying cost (20% of ave) (b) 331.20 169.20 114.00 85.50 68.76 57.60
Cost to order (c) 10.00 20.00 30.00 40.00 50.00 60.00
Total Cost per year (a + b + c) $3,653.20 3,573.20 3,564.00 3,545.50 3556.76 3,579.20
35
(a) Annual Cost of Materials = 3,600 x .92
= $3,312
3600

(b) Average Carrying cost = x .20 X 92
2
= $ 331.20
36
Sample Problems: EOQ and Quantity Discount
A material is purchased for $3 per unit. Monthly usage is

1,500 units, the ordering cost is $50 per order, and the
annual carrying cost is 40%.
Required:
(1) Compute the economic order quantity.
(2) Determine the proper order size if the material can be purchased
at a 5% discount in lots of 2,000 units.
37
ANSWERS:
1)
38
ANSWERS:
Order size……………………………….. 1,225 units 2,000 units
Number of orders per year…………….. 14.7 9
Average inventory………………………. 612.5 units 1,000 units
2)
Cost of placing orders at $50…………… 735 450
Cost of carrying inventory:
612.5 x $3 x .40……………..735
1000 x 2.85 x .40…………… 1,140
(12 x 1500 x $3)………………….. ……. 54,000

(12x 1500 x $3 x .95) if discount is taken 51,300
55,470 52,890
39
𝑅𝑈
𝑥𝐶𝑂 12(1500)

TOC = Number of orders per year =
𝐸𝑂𝑄 1225
= = 14.70
2)
= 735
40
SAFETY STOCK
▰ Extra inventory beyond expected demand.
• Changes in customer demand

• Incorrect forecast
41
SAFETY STOCK
ILLUSTRATION:
Assume a company uses an item for which it places 10
orders per year, the cost of stockout is $30, the carrying cost
is $.50 per year per unit, and the following probabilities of
stockout have been estimated for various levels of safety
stock: Safety stock (in units) Probability of Stockout
0 40%
50 20
100 10
200 5
42
SAFETY STOCK
Annual
Safety
stock
Annual Expected Annual Carrying Annual
Safety Number of Probability Annual Cost per Stockout Cost ($.50 Combined
Stock Level Orders x of Stockout = Stockouts x stockout = Cost + per unit = Cost
0 10 .4 4.0 $30 $120 $0 $120
50 10 .2 2.0 $30 60 25 85
100 10 .10 1.0 $30 30 50 80
200 10 .5 .5 $30 15 100 115
43
Sample Problems: Safety Stock
SunnyVale Inc. would like to determine the safety stock it needs to maintain for a
product, to incur the lowest combination of stockout cost and carrying cost. Each
stockout costs $75; the carrying cost for each safety stock is $2; the product is
ordered seven times a year. The following probabilities of running out of stock
during a period are associated with various safety stock levels:
Safety stock level Probability of Stockout
10 40%
20 20
40 8
80 4
Required: Determine the combined stockout and safety stock carrying cost
associated with each level and the recommended level of safety stock. 44
Sample Problems: Safety Stock
Annual
Safety stock
Annual Expected Annual Carrying Annual
Safety Stock Number of Probability of Annual Cost per Stockout Cost ($2 per Combined
Level Orders Stockout Stockouts x stockout = Cost + unit = Cost
x =
10 7 .4 2.8 $75 $210 $20 $230
20 7 .2 1.4 $75 105 40 145
40 7 .08 .56 $75 42 80 122
80 7 .04 .28 $75 21 160 181
The recommended level of safety stock is 40 units.
45
RE-ORDER POINT / RE-ORDER LEVEL
▰ unit quantity on hand that triggers the purchase of a

predetermined amount of replenishment inventory.
(Average daily usage rate x Lead time) + Safety stock
46
RE-ORDER POINT
ILLUSTRATION:
Cars PLC, a car distributor, needs to find when it
should place orders for a specific model of car from
its manufacturer. Relevant information is as
follows:
AVERAGE SALES 20 CARS PER DAY
LEAD TIME 50 DAYS
SAFETY STOCK 100 CARS
EOQ 2000 CARS
47
CALCULATE THE REORDER POINT
RE-ORDER POINT
Reorder = (Average x Average + Safety

Point Lead Usage) Stock
Time
= (50 x 20) + 100
= 1,100
cars
48
RE-ORDER POINT
ILLUSTRATION:
If the weekly usage of a stock item is 175 units,
and the lead time is normally four weeks but
possibly as long as nine weeks, safety stock 875
units. Compute for the order point:
ROP = (175 units x 4 weeks)
+ 875
= 1,575 units
49
Continuation
Assume a beginning inventory of 2,800 units, 2,090 EOQ with no orders
outstanding, the usage, order schedule and maximum inventory levels are:
Units in beginning inventory
Usage to order point
Order point
Usage during normal lead time
Safety stock
Order quantity units received
Maximum inventory, normal lead
time and usage
50
Continuation
Assume a beginning inventory of 2,800 units, 2,090 EOQ with no orders
outstanding, the usage, order schedule and maximum inventory levels are:
Maximum inventory = order point + order

quantity
– (average usage x normal lead time)
51
BUSINESS PAPERS USED TO SUPPORT
MATERIAL TRANSACTIONS
▰ Purchase Requisition
▰ Purchase Order
▰ Receiving Report
▰ Materials Requisition Slip
52
PURCHASE REQUISITION
It is a written request, usually sent to

inform the purchasing department of a
need for materials or supplies.
53
NORTHERN CONSOLIDATED COMPANY
PURCHASE REQUISITION
DEPARTMENT OR INDIVIDUAL MAKING FORMING DEPARTMENT
THE REQUEST
ORDER DATE 01/01/20 DELIVERY DATE 01/13/20
REQUESTED
QUANTITY DESCRIPTION UNIT PRICE TOTAL

600 UNITS MATERIAL A P 5.50 P3,300
APPROVED BY: TOTAL COST P 3,300

_________________________________
54
PURCHASE ORDER
It is a written request to a supplier for

specified goods at an agreed upon price.
55
NOVALICHES, QUEZON CITY
SUPPLIER ELLERY COMPANY ORDER DATE 01/02/2020
CUBAO, Q.C.
DATE REQUESTED 01/13/20
BY
DELIVERY TERMS FOB DESTINATION PAYMENT TERMS N/30
QUANTITY DESCRIPTION UNIT PRICE TOTAL
600 UNITS MATERIAL A P 5.50 P3,300
APPROVED BY: TOTAL COST P 3,300

_________________________________
56
RECEIVING REPORT
A receiving report is used to document

the contents of a delivery to a business.
unpacking matching preparing
57
SUPPLIER ELLERY COMPANY
PURCHASE ORDER NO. 015
DATE RECEIVED 01/03/20

QUANTITY DESCRIPTION DISCREPANCIES
600 UNITS MATERIAL A NONE
AUTHORIZED
SIGNATURE:__________________________________
58
MATERIALS REQUISITION SLIP
A written order to the storekeeper to

deliver materials or supplies to the place
designated or to issue the materials to
the person presenting a properly
executed requisition.
59
DATE REQUISITIONED 01/03/20 DATE ISSUED
01/06/20
DEPARTMENT APPROVED BY
REQUISITIONING FORMING _________________
REQUISITION NO. 05 ISSUED BY
__________________
QUANTITY DESCRIPTION JOB NO. UNIT PRICE TOTAL
600 UNITS MATERIAL A 101 P 5.00 P1,000
400 UNITS MATERIAL A 102 P 5.00
P 2,000
TOTAL COST P3,000
60
METHODS OF COSTING MATERIALS
1) First-in, first-out (FIFO)

2) Average cost
i. Weighted average method
ii. Moving average method
61
1. FIRST-IN, FIRST-OUT
It is based on the assumption that cost

should be charged to manufacturing cost
or cost of goods sold in the order in which
incurred.
62
ILLUSTRATIVE PROBLEM
August 1 Inventory 400 units at p10 P 4,000

12 Purchase 600 units at p12 P7,200
16 Issue 500 units
18 Purchase 300 units at p P 4,500
15
20 Issue 200 units
25 Purchase 400 units at p14 5,600
28 Issue 400 units
63
August 1 Inventory 400 units at p10 P 4,000 UNITS

(400) LEFT
12 Purchase 600 units at p12 P7,200 (100)
300
500 = (200)
500 UNITS
(300) == 300
--------------
0 UNITS
16 Issue 500 units
(500)
18 Purchase 300 units at p P 4,500
15 200 UNITS
(100) = 200 UNITS
20 Issue 200 units ----------
(200)
25 Purchase 400 units at p14 5,600 400 UNITS
------------
28 Issue 400 units
(400)
64
FROM AUG. 18 PURCHASE 200 UNITS AT 15 P 3,00

FROM AUG. 25 PURCHASE 400 UNITS AT 14 P 5,60
------------------
------------------
TOTAL 600 P 8,600
65
Aug 1 Inventory 400 units at P10 P 4,000

MATERIALS, BEG. P 4,000
12 Purchase 600 units at P7,200
+ 17,300
P12
PURCHASES ----------------
16 Issue 500 units
18 Purchase 300 units at P 4,500 TOTAL AVAILABLE FOR USE21,300
P15 - 8,600
20 Issue 200 units LESS: MATERIALS, END ----------------
25 Purchase 400 units at 5,600 12,700
P14 DIRECT MATERIALS USED
28 Issue 400 units
66
PERPERTUAL INVENTORY SYSTEM
DATE RECEIVED ISSUED BALANCE
ENDING INVENTORY
AUG 1 400 at P10 P4,000 COST OF MATERIALS
12 600 at P 12 400 at P 10 P 4,000
600 at P P 7,200
12 200 P 15 4,000= P 3,000
16 400 at 10 P 6,000 400 P 14 1,200= P 5,600
100 at 12 500 at P 12 ------------------------------------
2,400
18 300 at P 15 500 at P 12 P 6,000 600 P 8,600
300 at P 15 P 4,500
3,600
1,500
20 200 at P 12 300 at P 12 P 3,600 -------------------
300 at P 15 P 4,500 P 12,700
25 400 at P 14 300 at P 12 P 3,600
300 at P 15 P 4,500
400 at P 14 P 5,600
28 300 at P 12 200 at P 15 P 3,000
67
100 at P 15 400 at P 14 P 5,600
I. WEIGHTED AVERAGE
METHOD
It used for periodic inventory system.

Based on the assumption that units issued
should be charged at an average cost

=
Ending inventory = weighted average unit cost x units o
68
WEIGHTED
August 1 Inventory 400 units at P 10 P 4,000

12 Purchase 600 units at P 12 P7,200 400 units P 4,000
16 Issue 500 units
600 units P 7,200
300 units P 4,500
18 Purchase 300 units at P 15 P 4,500
400 units P 5,600
--------------------------------------------------
20 Issue 200 units
1,700 P 21,300
25 Purchase 400 units at P14 5,600
28 Issue 400 units
= 21,300
1,700 = P 12.53
average unit cost 600
P 12.53
g inventory = weighted units on hand
x units
69
= P 7,518
II. MOVING AVERAGE
METHOD
It used for perpetual inventory system.

A new weighted average unit cost is
calculated after each new purchase

=
Ending inventory = weighted average unit cost x units o
70
MOVING
DATE RECEIVED ISSUED BALANCE

AUG 1 400 at P10 P 4,000
12 600 at P 12 1,000 at P 11.20 11,200 500 P 5,600
16 500 at P 11.20 500 at P 11.20 5,600 200 2,725
18 300 at P 15 800 at 12.625 10,100 400 5,270
20 200 at P 12.625 600 at 12.635 7,575 ----------------------------------
1,100 P 13,395
25 400 at P 14 1,000 at 13.175 13,175
28 400 at 13.175 600 at 13.175 7,905
Aug. 12
Balance 400 P 4,000
Purchase 600 P 7,200
---------------------------------------------------------------------
1,000 11,200 = = P 11.20 71
COMPARISON – FIFO AND AVERAGE METHODS
FIFO AVERAGE
Inventory, P 4,000 P 4,000

beginning 17,300
--------------------- 17,300
---------------------
Purchases 21,300 21,300
Total available ( 8,600 ) ( 7,905 )
--------------------- ---------------------
for use 12,700 13,395
Less: inventory,
72
end
COST OF PURCHASING MATERIALS
I. Discounts
1. Trade discounts
2. Quantity discounts
3. Cash discounts
a) When taken method
b) When not taken method
c) When offered method 73
SPECIAL PROBLEMS IN MATERIAL ACCOUNTING
II. Freight-in
1. Direct charging
a) Relative peso value
method
b) Relative weight method
2. Indirect charging
74
DISCOUNTS
Trade Discounts
Generally given in terms of percentage
and are used to convert single price list
into a series of price lists for different
types
Areof middleman.
not given explicit
accounting recognition in the
75
books.
DISCOUNTS
Quantity Discounts
Represent cost savings for volume
purchases.
Are not given explicit
accounting recognition in the
books.
76
DISCOUNTS
Cash Discounts
Granted to customers to motivate them
to pay promptly.
77
CASH DISCOUNTS
 When taken method
Purchases and liabilities are
recorded at gross amounts at the time
of purchases.
78
DISCOUNTS
When taken method

at the time of purchase
Materials xx
Accounts Payable xx
payment within the discount period
Materials xx
Purchase Discount xx
Accounts Payable xx
payment not within the discount period
Accounts Payable xx
Cash xx 79
CASH DISCOUNTS
When not taken method
Purchases and liabilities are
recorded at net amounts at the time
of purchases.
80
DISCOUNTS
When not taken method

Materials xx
Accounts Payable xx
Accounts Payable xx
Cash xx
Accounts Payable xx
Purchase Discount Lost xx
Cash xx 81
CASH DISCOUNTS
 When offered method
Purchases are recorded at net and
the liability is recorded at gross, the
difference is charged to an “allowance
for purchase discount” account.
82
DISCOUNTS
When offered method

Materials xx
Allow. for Purchase Disc. xx
Accounts Payable xx
Accounts Payable xx
Allow. For Purchase Disc. xx
Cash xx
83
DISCOUNTS

Accounts Payable xx
Purchase Discount Lost xx
Allow. For Purchase Disc. xx
Cash xx
84
ILLUSTRATION
Jenelle Company purchased materials listed at P 40,000, terms, 2/15

August
ssume 1
payments as follows:
Full payment is made on August 14
Full payment is made on August 30
ent not
ment within
within the the discount
discount period
period (August
(August 14) 30)
the time of purchase (August 1)
1. 1.WHEN
WHEN TAKEN
TAKENMETHOD
METHOD 3.3.WHEN
WHENOFFERED
OFFEREDMETHOD
METHOD
1. Accounts
WHEN TAKEN METHOD
Payable 40,000 3. WHEN
Accounts OFFERED
Payable METHOD
40,000
Accounts payable 40,000 Accounts Payable 40,000
Materials
Cash 40,000
40,000 Materials
Purchase 39,200
Discount 800800
Lost
Purchase Discount 800 Allow. For P.D.
2. WHEN NOT Accounts
TAKENPayable
METHOD 39,200 All. For
40,000 Allow. For P.D.
P.D. 800 800
Cash Cash 39,200
2. WHEN
Accounts
2. WHEN NOT TAKEN
Payable
NOT TAKEN METHOD
METHOD 39,200 CashAccounts Payable 40,000
40,000
Materials 39,200
PurchasePayable
Accounts Discount Lost 800
39,200 39,200
CashAccounts Payable 40,000
Cash 39,200
85
FREIGHT-IN
Direct charging
the freight incurred on the purchase of
raw materials is added to the invoice
price.
86
DIRECT CHARGING
▰ RELATIVE PESO VALUE METHOD

▻ Freight is allocated on the basis
of the peso value of the items
purchased
87
DIRECT CHARGING
▰ RELATIVE WEIGHT METHOD

▻ Freight is allocated on the basis
of the weight of the items
purchased.
88
INDIRECT CHARGING
the freight incurred on the

purchase of raw materials is
charged to Factory Overhead
Control account
89
An invoice for raw materials A, B , and C is received
from the Bulacan Corporation. The invoice totals are: A
– P25,000 ; B – P15,000 ; C – P10,000. The freight
charge on this shipment weighing 10,000 pounds is
P1,500. Shipping weights for the respective materials
are 5,000 , 2,000 , and 1,000 respectively
Required:
1. Entry to record the purchase of materials and the freight
using:
a) Direct charging method
b) Indirect charging method
2. The cost per pond to be entered in the materials ledger
card for A, B, and C, if freight is allocated using:
90
a.) Relative peso value method
An invoice for raw materials A, B , and C is received
from the Bulacan Corporation. The invoice totals are: A
– P25,000 ; B – P15,000 ; C – P10,000. The freight
charge on this shipment weighing 10,000 pounds is
P1,500. Shipping weights for the respective materials
are 5,000 , 2,000 , and 1,000 respectively
. a. ) DIRECT CHARGING METHOD
Materials
Accounts Payable
. b. ) INDIRECT CHARGING METHOD
Materials
Factory overhead control
91
Accounts Payable
a. ) RELATIVE PESO VALUE METHOD
Mat. Invoice Percentage Share in Total cost
freight
A 25,000
B 15,000
C 10,000
------------ -------------- ----------------
----- ------- ---
TOTA 50,000 1,500
L

PERCENTAGE =
92
a. ) RELATIVE WEIGHT METHOD
Mat. Invoic Weight Freight per Share in Total cost
e (pounds) Pound freight
A 25,000 5,000
B 15,000 2,000
C 10,000 1,000
----------- ------------ -------------- ----------------
--- -- -- ---
TOTA 50,000 8,000 1,500
L

FREIGHT PER POUND =
93
Just-in-Time and
Backflush Accounting
GROUP 3
Just-in-time
▰ Just-in-time (JIT) inventory system is a
management strategy that minimizes
inventory and increases efficiency.
▰ an all-encompassing philosophy found on
eliminating waste.
▰ getting the right quantity of goods at the
right place and at the right time.
▰ “demand-pull approach”. 95
Backflushing
▰ also known as backflush costing/ accounting.
▰ is the accounting system used by JIT systems.
▰ shortened version of the traditional method of

accounting for cost.
96
Backflushing
What are the 3 major differences of

Backflushing from Traditional Costing
with regards to accounts used?
97
Trigger Points
- refers to a stage in a cycle going from

purchase of direct materials to sale of
finished goods at which journal entries
are made in the accounting system.
98
Trigger Points (Four Phases of Inventory Cycle)
Stage A: Stage B:
Purchase of direct materials Production resulting
in work in process
Stage C: Stage D:
Completion of good Sale of
units of product finished goods
Case 1: Cost Flow for 3 trigger points
(Purchase, Completion and Sale)
RIP
100
3 trigger points
What is the journal entry when trigger point A

occurs?
Raw and In-process XX

Accounts Payable XX
101
3 trigger points
What is the journal entry to record conversion costs?
Conversion Costs Control XX

Various accounts XX
102
3 trigger points
What is the journal entry when trigger point C

occurs?
Finished Goods XX
Raw and In-Process XX
Applied Conversion Cost XX
103
3 trigger points
What is the journal entry when trigger point D occurs?
Cost of Goods Sold XX

Finished Goods XX
104
3 trigger points
What is the journal entry to record the underapplied

conversion cost

Conversion Cost Control XX
105
3 trigger points
What is the journal entry to record the overapplied

conversion cost

106
Problem 1
The following data for Cookie Manufacturing Company will be

used to illustrate the backflush costing:
Materials purchased on credit 195,000
Actual conversion costs incurred 126,000
Number of units manufactured 10,000 units
Number of finished units sold 9,900 units
Standard cost per unit:
Materials 19
Conversion costs 12
107
Entries for 3 trigger points
A. To record materials purchased

Raw and in process
Accounts payable
B. To record conversion costs incurred
Conversion cost control
Various accounts
C. To record the cost of finished goods
Finished goods
Raw and in process
Applied conversion cost 108
D. To record the sale

Cost of goods sold
Finished goods
E. To record underapplied/overapplied conversion cost

Applied conversion cost
Cost of goods sold
109
Case 2: Cost Flow of 2 Trigger Points
(Purchase and Sale)
RIP
110
2 Trigger Points (Purchase and Sale)

occurs?
Raw and In-process XX

Accounts Payable XX
111

Various accounts XX
112
What is the journal entry to record the

cost of goods completed during the
accounting period (trigger point C)?
113

Raw and in process XX
114

conversion cost

115

conversion cost

116
Problem 1

Materials 19
Conversion costs 12
117
Entries for 2 Trigger Points (Purchase and Sale)

Raw and in process
Accounts payable
Various accounts
No entry
118

Cost of goods sold
Raw and in process

Cost of goods sold
119
Case 3: Cost Flow of 2 Trigger Points
(Completion and Sale of Finished Goods)
120
2 Trigger Points

occurs?
No entry
121
2 Trigger Points

Various accounts XX
122
2 trigger points (Completion and Sale of Finished
Goods)
What is the journal entry when trigger point C

occurs?
Finished Goods XX
Accounts Payable XX
123
Goods)

Finished goods XX
124
Goods)

conversion cost

125
Goods)

conversion cost

126
Problem 1

Materials 19
Conversion costs 12
127
Entries for 2 trigger points (Completion and Sale
of Finished Goods)

No entry
Various accounts
Finished goods
Accounts payable
Goods)

Cost of goods sold
Finished goods
Cost of goods sold
129
Problem 2
Nicole A. Inc. uses backflush costing to account for

its manufacturing costs. The trigger points for
recording inventory transactions are the purchase
of materials, the completion of products, and the
sale of completed products.
Required:
1. Prepare journal entries, if needed, to account for
the following transactions.
a. Purchased raw materials on account, $150,000. 130
b. Requisitioned raw materials to production,
$150,000.
c. Distributed direct labor costs, $25,000.
d. Incurred manufacturing overhead costs,
$100,000. (Use Various Credits for the credit part
of the entry.)
e. Nicole A. Inc. applied conversion costs total
$125,000 (including direct labor cost of $25,000)
f. Completed products were sold 131
A. Raw and In- Process
Accounts Payable
B. No entry
C. Conversion Cost Control

Accrued Payroll
132
D. Conversion Cost Control
Various credits
F. Cost of Goods Sold

Raw and In- Process
Conversion Cost
133
Problem 3
The Magnolia Corporation has a cycle time of 1.5 days, uses a

raw and in process account, and charges all conversion costs to
cost of goods sold. At the end of each month, all inventories are
counted, their conversion cost components are estimated, and
inventory account balances are adjusted. Raw materials cost is
backflushed from raw and in process account to finished goods.
The following information is for July.
134
Beginning bal. of RIP account including 14,040 of conversion
cost 23,400
Beginning bal. of finished goods account including 14400 of CC
24,000
Raw materials received on credit
444,000
Ending RIP inventory per physical count including 15,360
25,600
conversion cost estimate
135
Ending FG per physical count including 11,400
1) Raw and In Process
Accounts payable

2)Finished goods
Raw and In process
3)Cost of goods sold

Accrued payroll
FOH Applied 136
Finished goods
4)Raw and In Process

Cost of goods sold

Finished goods
137
Problem 4
The following data for J&R Manufacturing Company will be used

to illustrate the backflush costing:
Materials 20
Conversion costs 10
138

Raw and in process
Accounts payable
Various accounts
Finished goods
Raw and in process

Cost of goods sold
Finished goods

Cost of goods sold
140

Raw and in process
Accounts payable
Various accounts
No entry
141

Cost of goods sold
Raw and in process

Cost of goods sold
142
Entries for 2 trigger points (Completion and Sale
of Finished Goods)

No entry
Various accounts
Finished goods
Accounts payable
Goods)

Cost of goods sold
Finished goods
Cost of goods sold
144

Accounting For Materials: Group 3

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Accounting For Materials: Group 3

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ACCOUNTING

▰ No continuous record taken to

▰ Records real-time transactions of

▰ Keeps expense within limits

1. Inventory is the result of purchasing raw

2. Reduction of inventory is the result of

3. Optimum inventory investment is based

4. Efficient purchasing, management &

5. Forecasts help determine when to order

6. Inventory control is more than

7. Methods of inventory will vary depending

▰ Materials are reviewed on periodic

▰ Material inventory has maximum

▰ Used by non-expensive inventory

Receive Order Delivery

▰ Used by most companies

▰ Used by companies with large

▰ Systematic control over

▰ Effective physical control must

Purchase price Associated Costs

Total Ordering Cost = Total Carrying Cost

▰ Ideal order quantity a company should purchase

Number of orders placed annually =

To illustrate the use of the EOQ formula, assume an

Stevenson Company estimate that it will need 12,000

Now assume the following quantity discounts

A material is purchased for $3 per unit. Monthly usage is

(12 x 1500 x $3)………………….. ……. 54,000

▰ Extra inventory beyond expected demand.

• Changes in customer demand

The recommended level of safety stock is 40 units.

▰ unit quantity on hand that triggers the purchase of a

(Average daily usage rate x Lead time) + Safety stock

Reorder = (Average x Average + Safety

Maximum inventory = order point + order

It is a written request, usually sent to

QUANTITY DESCRIPTION UNIT PRICE TOTAL

APPROVED BY: TOTAL COST P 3,300

It is a written request to a supplier for

APPROVED BY: TOTAL COST P 3,300

A receiving report is used to document

unpacking matching preparing

DATE RECEIVED 01/03/20

A written order to the storekeeper to

1) First-in, first-out (FIFO)

It is based on the assumption that cost

August 1 Inventory 400 units at p10 P 4,000

August 1 Inventory 400 units at p10 P 4,000 UNITS

FROM AUG. 18 PURCHASE 200 UNITS AT 15 P 3,00

Aug 1 Inventory 400 units at P10 P 4,000

It used for periodic inventory system.

Ending inventory = weighted average unit cost x units o

August 1 Inventory 400 units at P 10 P 4,000

It used for perpetual inventory system.

Ending inventory = weighted average unit cost x units o

DATE RECEIVED ISSUED BALANCE

28 400 at 13.175 600 at 13.175 7,905

Inventory, P 4,000 P 4,000

When taken method

When not taken method

When offered method

payment not within the discount period

Jenelle Company purchased materials listed at P 40,000, terms, 2/15