Question 1

Carrying costs would include all of the following except:

Accepted Answer

Carrying costs refer to the expenses associated with maintaining inventory, such as warehouse rent, property taxes, and losses due to obsolescence. Inspection employees' wages would fall under the category of ordering costs.

Question 2

The following data refer to various annual costs relating to the inventory of a single-product company that requires 10,000 units per year:  What is the annual carrying cost per unit?

Accepted Answer

C

Question 3

An effective cost control system should include:

Accepted Answer

An effective cost control system should include all of the options mentioned (A, B, and C). An established plan of objectives and goals helps to identify what needs to be achieved, regular reports help to measure progress and identify areas where changes need to be made, and specific assignment of duties and responsibilities helps to ensure that everyone knows their role in achieving the stated objectives and goals. Therefore, all three components are necessary for an effective cost control system.

Question 4

What is the objective of the economic order quantity (EOQ)model for inventory?

Accepted Answer

The objective of the economic order quantity (EOQ) model for inventory is to minimize the total order costs and carrying costs over a period of time. This means finding the optimal order quantity that minimizes the costs associated with ordering and storing inventory. The EOQ formula takes into account the cost of placing an order, the cost of holding inventory, and the expected demand for the inventory. The goal is to find the sweet spot, where too many orders will lead to high ordering costs, while too few orders will lead to high carrying costs. By minimizing both, the total cost of inventory can be minimized. Therefore, option C is the correct choice.

Question 5

Marley Company hired a consultant to help improve its operations.The consultant's report stated that Marley's inventory levels are excessive and cited several negative consequences to Marley as a result.Which of the following consequences was not cited in the report?

Accepted Answer

The consultant's report highlighted issues stemming from excessive inventory, such as capital tied up in inventory that could be used elsewhere (A), increased property taxes and insurance costs (C), and accumulation of obsolete materials (D). However, production stoppages due to parts not being available (B) would be a consequence of insufficient inventory, not excessive inventory.

Question 6

The data used to calculate the order point include all of the following except:

Accepted Answer

The data used to calculate the order point includes the rate at which the material will be used, the estimated time interval between the placement and receipt of an order, and the estimated minimum level of inventory needed to protect against stockouts. The costs of placing an order are used to calculate the economic order quantity, which is a separate calculation from the order point.

Question 7

Janet is the purchasing agent at Frameco Manufacturing.Her duties include vendor selection and ordering materials.Due to a recent economic downturn and resulting cut backs,Janet has been assigned the additional duty of preparing receiving reports after comparing the goods received to the purchase order.This is an example of:

Accepted Answer

A lack of segregation of duties occurs when one person is responsible for multiple tasks that should be separated to provide a system of checks and balances. Janet's additional duty of preparing receiving reports means that she is responsible for both purchasing materials and verifying the receipt of those materials. This lack of segregation increases the risk of errors or fraud going undetected.

Question 8

Order costs would include all of the following except:

Accepted Answer

Storeroom keeper's wages are considered a carrying cost, not an order cost.

Question 9

Sam Jones works at Seeker,Inc.Sam's duties include identifying where materials can be obtained most economically,placing orders and verifying invoices and approving them for payment.Sam is a(n):

Accepted Answer

The duties listed suggest that Sam is responsible for purchasing goods for the company, which makes him a purchasing agent. The other options listed (receiving clerk, accounts payable clerk, production supervisor) do not match the given duties.

Question 10

Expected annual usage of a particular raw material is 1,200,000 units,and standard order size is 10,000 units.The invoice cost of each unit is $145,and the cost to place one purchase order is $105.The estimated annual order cost is:

Accepted Answer

First, we need to calculate the number of orders placed per year:
1200000 / 10000 = 120 orders per year

Then, we can calculate the total cost to place all these orders:
120 * 105 = $12,600

Therefore, the estimated annual order cost is $12,600. Choice C is the correct answer.

Question 11

To effectively control materials,a business must maintain:

Accepted Answer

Limited access ensures that only authorized personnel can access materials, reducing the risk of theft or misuse.

Question 12

Arwen Company has correctly computed its economic order quantity at 500 units;however,management feels it would rather order in quantities of 600 units.How should Arwen's total annual order cost and total annual carrying cost for an order quantity of 600 units compare to the respective amounts for an order quantity of 500 units?

Accepted Answer

Ordering in quantities larger than the economic order quantity (EOQ) results in fewer orders placed per year, which lowers the total annual order cost. However, it also means holding more inventory on average, which increases the total annual carrying cost.

Question 13

The form used to notify the purchasing agent that additional materials are needed is known as a:

Accepted Answer

A purchase requisition is a document used within an organization to notify the purchasing department that materials or supplies are needed for the business operations. It typically includes details such as the quantity, description, and any other specifications required for the materials.

Question 14

The form prepared by the purchasing agent and sent to the vendor to obtain materials is known as a:

Accepted Answer

A purchase order is the official document that a buyer sends to a seller to order goods or services. It specifies the types, quantities, and agreed prices for products or services.

Question 15

The following data pertains to Western Company's materials inventory:  What is Western Company's EOQ?

Accepted Answer

The answer of The following data pertains to Western Company's...

Question 16

The employee who is responsible for preparing purchase requisitions is most likely the:

Accepted Answer

The storeroom keeper is typically responsible for preparing purchase requisitions as they manage inventory levels and identify when new supplies are needed.

Question 17

Expected annual usage of a particular raw material is 180,000 units,and standard order size is 12,000 units.The invoice cost of each unit is $300,and the cost to place one purchase order is $80.Assuming the company does not maintain safety stock,the average inventory is:

Accepted Answer

The average inventory is calculated as half of the order size. Therefore, 12,000 units / 2 = 6,000 units.

Question 18

Murphy Company uses 3,000 yards of material each day to make hats.It usually takes five days from the time Murphy orders the material to when it is received.If Murphy's desired safety stock is 6,000 yards,what is Murphy's order point?

Accepted Answer

Murphy's order point is calculated by multiplying the daily usage (3,000 yards) by the lead time (5 days) and adding the safety stock (6,000 yards): (3,000 yards/day * 5 days) + 6,000 yards = 21,000 yards.

Question 19

The personnel involved in the physical control of materials includes all of the following except the:

Accepted Answer

The job of cost accountants primarily focuses on analyzing costs and providing recommendations to reduce and control them. They are not directly involved in the physical control of materials. Therefore, they are the exception among the given choices. A purchasing agent is responsible for procuring materials, a receiving clerk is responsible for inspecting and accepting/rejecting incoming goods, and a production department supervisor oversees the manufacturing process.

Question 20

A receiving report would include all of the following information except:

Accepted Answer

A receiving report typically includes information such as what the shipment contained, the purchase order number, the date the materials were received, quantity received, and condition of the materials. However, it usually does not include information about the customer as this is already known and indicated in the purchase order.

Quiz 2: Accounting for Materials