Chapter 2 Purchasing Materials Chapter 1 dealt with the basie procedures of job order cost cycle and how the three elements of manufacturing cost, namely materials, tabor and manufacturing overhead relate to each other. The figures used in our illustrations of Jenjen Printer, Ine. in Chapter 1 were in summary form. In this chapter and the remaining chapters, you will find ort where this cost figures originated. The detailed procedures and documents required to arcount for purchasing materials will be discussed im this chapter, MATERIALS CONTROL In a manufacturing business, the cost of raw materials is a major part of the total manufacturing cost of each product, Rigid controls over raw materials are necessary not only to guard against theft but also to mini- mize waste and misuse from causes auch as maintenance of excessive inventories, overissuance, deterioration, apoilage and obsolescence of materials. Certain requirements are essential to an effective internal control system for materials, as follows: * Materials of the desired quality must be available when needed. + Correct quantities and types of materiala must be on hand at the right time for production to proceed on schedule. * Materials must be purchased at the most favorable prices. * Materials must be protected from loss or theft. * Risks of spoilage and obsolescence must be minimized, + Cost of materials handling and storage must be kept to a mini- mum. as8 = 5 vary from com. eed are Sotr J include the aterial ind methods for conto mats produ >, organization, ba ‘ype nary entre Specific procedures ai pany to company. Si of the factors invalved. Modern s¥*t° following features: F and issuing materi. + Physival safeguards for receiving, Storing: ar ing for mal als. + Formal proce + Perpetual inventory system to pre quantity and value of each type of ma and the balance on han ing record of the dures for orderiny veceaved and issued “To sisnplify the discussion on materialain thie HAP or. mee ae tained manually. In practice. most companies records stained electroni- Hae coring. issuing and controlling inventory 2 main’rlated to matte cally. Computerized accounting system an procedures related | a rials ave discussed later in this chapter and in Chapters 3-ar Organization for Control rational structure that al- it defines authority, fixes re- {checks and balances. d know-how, the functions ly subdivided into the Control is achieved in part th lows specialization at the sam sponsibility, and provides a system ol specialization an To secure the advantages .d use ave usual! related to materials acquisition an follawing departments: 1. Purchasing Department. This department is charged with the ing orders for materials with reliable sup- responsibility of placi pliers, at the right time and at the right price. 2. Receiving Department, This department is charged with the inspeciion of incoming shipments and venfication of the quanti- ties received on order. 9. Storeroom (stockroom). This department is responsible for protecting materials against physical deterioration and ensur- ing that stocks are properly issued. 4. Accounting Denarenens, ihe department records all trans- actions in the accounts after jocumentary evidences hi aurea by other cone as hays bent 5. ‘ash Department. This department pays all i i - proval by the accounting aepatnene eel invnteet Ween Checks and balances (that is, effective inte i making each department independent aoe ae annoyMATERIALS PURCHASING PROCEDURES The responsibility for purchasing materials is ivi te the maenEGarn agent. This person must buy materials in correct quantities, at the proy id time, and at the lowest price. The purchasing agent's staff is park of te procurement section of the purchasing department. The purchasing staff keeps informed of various sources of supply, negoti- ates purchase contracts, prepares purchase orders, and follows up deliv- eries, The routine work of the purchasing staff begins with the receipt of a purchase requisition, Recorder Point: ‘To determine when an item has reached a level at which it should be reordered, the following factors should be considered: * The frequency at which the materials is used + The length of time it takes for the material to be delivered from the supplier after an order has been placed. This is known as the lead time. * The minimum level of materials that should be maintained to ensure that the company does not run out of materials. This is known as the safety stock, For example, the reorder point is 200 cans of ink, Jenjen Printers wants to have at least 100 cans on hand at all times. Since 20 cans are used in production each day and it takes five days to receive an order, the reor- der point is computed as follows: 20 cans (daily usage) x 5 days (lead time) 100 Add: safety stock 100 Reorder. point “200 pote ete a ee ee i ithin five days, then. If an order for cans of ink is processed as expected witl i the new cans of ink should arrive at Jenjen Printers as the inventory reaches the safety stock level of 100. Even if the order is Sel , there will still be 100 cans on hand to meet production requirements.38 ee Eeonomie Order Quantity (E0@ item to item. It should The standard quantity to be ordered varies aes empile keeping inven- reflect the quantity necessary to get the best Miipted production tory at an appropriate level to ensure unit! ; i. nits to order, & formul cous number of Y ped. It is computed as To determine the most aban ts hhas been develo called the economic order quanti follows: 2 x annual requirements x cost of an order BOQ = - 2 Cost to carry & single item If Jenjen printers! coat to order is P10B, the cost to carry a item in inven tory is P75; and if the company requires 5,000 cans of ink during the year, the EOQ is computed as fallows: 2x 5,000 x 108 E0Q 1 — - 1,080,000 J 1 = (14,400 = 120 ‘The determination of the total cost to order as i ous order sizes is shown below: ok Rae manda ly a yan Mlustration 2-1 a Oe Numer Total Coat erase Total Cast Total Cost 0 a ar 10 36 3,888 a mn sineChapter 2 8a ee Eeonomic Order Quantity (BOQ) item to item. It shoulg The standard quantity to be ordered varies fom, hile keeping inven. reflect the quantity necessery to get the best Pace aie tory at an appropriate level to ensu! re uninterrul its to order, a form ‘To determine the most advantageous number of unite t¢ 0°" 0 ula gallos the economic order quantity has been develop! follows: Se 2x annual requirements x cost of an order ‘Cost to carry # single item OQ = , tem in inven- If Jenjen printers! cost to order is P108, the cost to carry ab Ite tory is PTS: and if the company requires 5,000 cans of ink during the year, the EOQ is computed as follows: 2x 5,000 x 108 E0Q = 6 1,080,000 aur = 120 ‘The determination of the total cost to order and carry materials at vari- ous order sizes is shown below: Tilustration. 2-1 a Order Number Total Cost Average 1G Size of Orders, © Le Order’ inuentary§iayCeet Total Cost to ouea” gas ou oe ara Cue Sip teal Ina, "ary %0 e- 696 © a i 8 Bano lio Fa 3e88 % 43500 30 19 a aus 2 5250 ousPurchasing Materials —_—______#2 An examination of the tal eee perluces tha oe ile Cllustration 2-1) shows that an order of 120 l cost, O; Oe Bicher Ge tal cost. Order sizes below 2 pests (ashen take otis. Ts is cause, a5 the order tae —_ then the. oried cise deco and the total cost to carry increases, sens ty the Sout to en te Beate hopped ie de the total of these two costs is at a hininane is the point at which Illustration 1 Assume that a company’ ¥'S producti, i i i each day, that it takes four days in vesalne tees eee ata supplier, and that the i gi hand at all times. Compute they t9 288 400 Halos of materials 2, Assume that a com: any uses 10,0 R ,000 kilos of material the cost to carry a kilo of material in siento ie POO am car at 1Q. cost to place an order is P135, Calculate the Answers: 1, 400 kilos x 4 days = 1,600 kilos + 400 kilos = 2,000 kilos, 2x 10,000 x 135 30 ) 2 EOQ 2,700,000 30 90,000 = 300 Purchase Requisition Once the materials reach the reorder point, the storercom supervisor completes a purchase requisition requesting that materials be ordered. A purchase requisition (Document 1) is a properly approved, written re- quest for materials and is prepared in duplicate. ‘The original copy as shown on the next page is sent to the purchasing department as a requeat for the materials. The duplicate copy is retained in the storeroom files. Purchase requisitions must be numbered for easy reference.FG a Document I res Requisition denjen Printers, Inc. i 27 Ayala Ave. ee Makati City, Philippines Date Require! ———— ee iplion_ + ———= Description Requisitioned by Approved by ______—— | ee Purchase Order When the purchasing department receives the P d. Several suppliers source of supply must be selectet quate prices or make bids. Tn choosing the suppher, considers factors such as dependability, que and price. purchase requisition, may be asked to the purchasing agent lity of material, delivery date, After choosing the supplier, the purchasing agent prepares 4 purchase order (Document 2) as shown jn the next page. The purchase order is @ written authorization to the supplier to ship the specified material. The purchase order is prepared in five copies to be distributed as follows: 1, Suppliers as an authority to deliver the materials 3, Sloreraom as notification that the materials requested are on order. as an authorization to accept an incoming shipment. Purchasing Department (2 copies) for file in unfilled order 4, Receiving Department 5. Effective internal control procedures require that all e prenumbered. At the end of each month, the cast ee all numbered purchase orders either have been sent to supplier: are on hand. This ensures that purchase orders are used only a authorise 4 purposes.porchasing Materials mee ot Document 2 “Jenjen Printers, Inc. aan —_—___ ‘7 Ayala Ave Purchase Order Makati City, Philippines Be: Date Fe SHIPPING INSTRUCTIONS ee Date Wanted —__— Ship Via | Description Unit price ‘Amount | | i | By = "3 Purchasing Agent oe Dept. Receiving Report The materials are received by the receiving clerk from the supplier. The receiving clerk is responsible for unpacking them, checking quantities, and transferring them to the storercom. The receiving clerk, upon re- ceipt of the materials, takes out his copy of the purchase order and com- pares its contents with the shipment. After counting and inspecting the materials, the clerk prepares a receiving report. The receiving report as shown in Document 3 on the next page shows all details of the ship- ment, including comments on the condition of the materials received. The receiving report is usually prepared in quadruplicate. The original and one copy are sent to the purchasing department, where they are com- pared with the purchase order and the supplier's invoice. One copy ac- companies the materials to the storercom for comparison with the pur- chase order and entry in the storeroom. records. The storeroom supervi- sot signs the final copy to confirm that the materials have reached the storeroom. This copy is then kept in the receiving clerk's permanent file. ‘The storeroom clerk records the receipt of sates ina scieniary tale ger, the terials ledger, by making an entry on the appropriate materi- als ledger card iGesanent 4), Materials are also called stores; henee, the materials ledger is sometimes called stores ledger. A separate card, like one shown on the next page, is kept for each type of material_— Document 4 Sr Receiving Report | denjen Printers, Inc. No. ————— > 27 Ayala Ave. Mahaii City, Philippines agate | te Received _________| a Deak Order No. —__ SS fnvoice No- gived by | es - ShipViae | Frighe Ba Ns —— [Ne ee a Quantit, Quanti Quantity eripti‘ aes || aid Rejected fe ft INSPECTION RECORD Quantity Quantity ; Accepted Returned Reason For Rejection. Date —_______— Inspected by Documents MATERIALS LEDGER CARD Material Reorder Point Number Reorder Quantity Received Unite Price Amount lie || Unite Price Amount || Units Price _Amiount| ||Purchasing Materials So Comparing Documents When the invoice is received from the supplier, it is sent to the purchas- ing department. Normally the invoice will arrive before the shipment to allow the verification of the purchase order before the shipment is ac- cepted. The purchasing department then compares the supplier's invoice (purchase invoice) with the puchase ord i ler and the receiving re| make sure that: sssiving sepone'® Materials ordered have been received in good condition and these are listed only on the invoice. Terms, unit prices, shipping charges, and other details are in accordance with order specifications. + Computations are correct. If all documents are in order, the purchase invoice, receiving report, and the purchase order are stapled and filed in a completed purchases folder arranged alphabetically by supplier. Next, a check voucher also called disbursement voucher like the one shown in Document 6 is prepared with supporting documents attached to it. Once approved, the voucher is sent to the accounting department for recording. Recording the Voucher When the voucher and supporting documents reach the accounting de- partment, the voucher clerk checks all the documents if they are prop- erly approved and signed. This double-checking is another part of an ef- fective internal control system. unt distribution against the purchase order, the urchase in the voucher register, as shown in mbered for control purposes). The pur- materials is entered as a debit in the dit in the Vouchers Payable column. f entry A in Chapter 1, debiting In verifying the acco voucher clerk enters the p' Document 6. (Vouchers are prenul chase of direct materials or indirect Raw Materials column and as a cre ‘The total for the month is the source o} Materials account. After the entry ia made in the voucher register, the voucher is sent to the cath department for filing in the unpaid vouchers fle.v4 —— hapler OE Paying the Vou i Before the due tate the voucher is romoved from dhe urgai seiichets file. A staff in the Cash Department prepares 2 Chechen cor the voucher. ‘The cheek is then recorded in the eheck reesslens |’ To ner is marked "Paid" by using a rubber stamp and entecs te nd the and date paid on the voucher. The check is sent to the ea eeeedls the voucher is returned to the voucher clerk. The viene Louhes: Wik check number and date of payment in the voucher. fo oe Sone invoice and other supporting documents, is then filed in ers file. Document 5 DISBURSEMENT VOUCHER Jenjen Printers, Inc. Voucher No. | 27 Ayala Ave. Issued date Makati City, Philippines Due date Payee Invoice Date [ Invoice No Description I Amount. Distribution count Debited Amount Check No. Approved by J Document 6 VOUCHER REGISTER For the Month of 2018 Paid Is Voucker'No. || Payableto || Date Check No. "Geta CRIzI_ |— a —— 9s Few of Docunieuts ina Materials Purchasing System Oe a vane ine TR ake Shows the flow of documents required for ie of the documonte The qe te’ show which departments receive cop. jnth puishaee are colies flowchart indicates how the documents related ihealeburestuane os Hand used to propare a disbursement voucher doe to remwad a eter 18 then the basis for the preparation of journal entries 10 record the purchase and the payment of the invoice COMPUTERIZED MATERIALS PURCHASING SYSTEM On-line purchasing system for materials allows companies to have up-to- date information and improves the Organization's purchasing process. Acomputerized purchases aystem has an inventory file, a supplier file, and an open purchase order file in its memory. Upen receipt of a pur- chases requisition, the purchasing agent seans the supplier file and chooses asupplier. The computer prepares a purchase order, and the data in the purchase order is added to the open purchase order file. When the order arrives, the receiving clerk counts the items and enters it in the receiving room terminal (also indicating which materials must be returned, if any). The computer compares the items ordered (stored in the open purchase order file) with the items received, prepares the re- ceiving report, and updates the open purchase order file, the inventory file, and the supplier file A computerized system can provide information about purchases to the various users of the system, thus, improving the process of requisitions. SPECIAL PURCHASING PROCEDURES In addition to the usual purchasing procedures, special procedures are needed to meet the following special cases:96 Chapter 2 es ir Bill of Material, To avoid the problem of insufficiency of materials needed, the production manager may prepare a bill of materials when a new sales order is re. ceived. The bill of materials lists all materials needed on the job and the date they will be needed, as shown in Document 7 below. This record enables the storeroom supervisor to check the quantity of material on hand to ensure that sufficient material is available. To avoid costly de. lays, the purchasing agent may be required to buy more materials in ad. vance. The bill of materials used by some companies usually contains ¢o)- umns for unit costs and total costs, Such a bill may later be used as a Materials requisition. Debit and Credit Memorandums Damaged or defective materiala are immediately returned to the sup- plier. A note on the return is made on the receiving clerk's copy of the purchase order and on the receiving report. The purchasing agent then Prepares a debit memorandum. The debit memorandum is a notice to the vendor of a deduction from the invoice for the cost of the returned mate- rials, as shown in Document 8 on the next page. Document 7 Bill of Materials IGG Manufacturing Corp Fairview Avenue Quezon City, Philippines ————— Date To be Started on For Will require the following materials; Materials Materials Issued Units No. Description. nit Coat] “Ta Cost Materials received by Date Se Department Head eS retpurchasing: Materials pocument 8 Jenjen Printers, Ine. 27 Ayala Ave. Makati City, Philippines Purchase a a 1 — jantity || Order St 4 Geen Crier No. | Stock No.l] Description | Unit Price | Amount ——} 1 a sl Explanation __ Returned Via Purchasing Agent Ifthe supplier ships more materials than were ordered and the materi- als are not needed, the purchasing agent normally authorizes their re- turn, However, if they are retained for future use and the materials have not been included in the supplier's invoice, the purchasing agent pre- pares a credit memorandum for the additional cost. The purchase or- der may be amended to include the extra materials shipped instead of issuing a credit memorandum. SUMMARY OF PROCEDURES AND PRINCIPLES The following are the summarized procedures and principles of purchas- ing materials: 1. Materials must be carefully controlled to protect the company's large investment in materials and to maintain enough materi- als on hand to meet production requirements. te 2 Materials should be purchased in correct quantities, at the proper time, and at the most economical cost to the company. Purchasing procedures are performed by the purchasing agent.Chapter 2 5 owing Step of the fallow ne or rernom super ists ° consi, prepared bY nager 3, The purchasing cycle €0" 7 A purchase requisition 18 visor or the praduction mal . se order is issue nie * Chee are received from the supp} the bill should be authorized. voucher register, + ‘The purchase is recorded 1a cho voucher soe corded in + Acheck in payment of the invoice is is8 the check voucher. 4. All purchasing procedures mu of internal control: + Request for purchases mus! persons. + Purchase orders must be properly approved. esicon + All materials received must be carefully counter in- gpected. + Payment should be made only upon proper approval. + Purchasing responsibilities should involve different per- sons, $0 that the risk of fraud or error is reduced. 5. Special procedures can be used for handling damaged, lost, or defective materials, and for shortages and overages in shipment 6 Many of the procedures in the purchasing cyele can be handled electronically. r, payment of at reflect the following principles + be made only by authorized CONTROL PROCEDURES Because inventory represents a major investment to a firm, adequate con- trol is necessary. The level of raw materials inventory is based on sched- uled production, which is in turn based on sales forecasts. Fiv i procedures are commonly used as follows: peters 1. Order Cycling. Materials are revi ewed 01 orders are placed to maintain a desired pea sxe, and 2, Min-max method, Minimum ‘ et and maximum i determined. Reordering is done when ae inventory levels are reached. i¢ minimum level is 3. Two-bin methed. This i ny i is used for j i first bin is empty, an order is fer inexpensive items. When the coverage until the order ie vest reg The Second bin providesing Materia a, 99 ABC plan. This is use ferent values, The review and closer monitoring A items — most. expensi ve Se ne items, usually few on hand. bead. ately priced items and moderate quantity on d with a wide variety of items having dif- More expensive items receive more frequent C items INEXPeNsive items, Aulomatic order system. ‘ the inventory reaches a predete: best when used with a computer, MANAGEMENT IMPLICATIONS Since in most manufacturing firms the cost of material is a ma- jor part of manufacturing casts, management is concerned with the control of materials and the development of efficient mate- rials purchasing and handling procedures. Standards for the frequency of ordering raw materials and most economic order quantitics are to be developed by the manage- ment. The goal is to keep materials inventories at the lowest level possible, consistent with economic order quantities, the ready availability of materials and other factors. Correct types and quantities of materials must be kept on hand, but with the least possible amount of funds invested in inventories. To achieve the above goals, appropriate procedures must be de- veloped for ordering, paying for, receiving and storing materi- als. Computerized systems have greatly enhanced and simpli- fied the implementation of these procedures, providing instan- taneous data about inventories and providing inexpensive con- trol system. Computer software has allowed even small manufacturers to use sophisticated inventory purchasing and control system that help achieve the goal of having minimum, but adequate, quanti- ties of inventory on hand at all times.100 Reeemeiner etree a0Spoy yessugl energy soya Jompnon Muu eaagonan WOMEMEED TEAL) ANSE ONILNNOOOV ‘LNSAUAVdGO ONISVHOUN NOLLISINDOV STVINELVA 10d LAVHOMOTApurchasing Materials Ina well controlled material, ‘3 iS Syste: the following activities except The hb c. d. a ee nova rs-rmnrca i01 m, the Purchasing Agent performs placing of purchase orders with supplie; receiving of purchase requisitions = approving and checking of invoices preparation of purchase order. The purchase requisition is a document used to: pose . initiate the return of merchandise to the vendor. . inform the purchasing agent of a need for materials. initiate payment for materials ordered inform the Purchasing Department of a receipt of materials. The materials requisition: ¢, a authorizes the storeroom to deliver types and quantities of materials to a given department. is the list of materials requirements for each step in the production cycle, informs the purchasing agent of the quantity and type of materials needed. . contracts for quantities to be delivered. The purchase order: is the list of materials requirements for each step in the production cycle. . contracts for quantities to be delivered. informs the purchasing agent of the quantity and kind of materials needed. i 7 : authorizes the storeroom to deliver materials to a given department.yor 5, 7. The bill of materials: a. b. 5 d. Chapter _ h step in tl is the list of materials requirements for eac Pp he and kind of materials production sequence. production se chasing agent ofthe quantl? needed 5 results of inspection and s received and report certifies quantities iver types and que testing. authorizes the storeroom to del materials to a certain department. mtities of The receiving report: is the list of materials needed for each steP in the production a cycle. b, certifies quantities received and reports results of inspection and testing. : ¢. informs the purchasing agent of the quantity and kind of materials needed. d. contracts for quantities to be delivered. The purchase requisition may originate from all of the following except: a. A storeroom employee. b. A materials record clerk. c. A receiving department clerk. d, Other department employee who needs materials of a special nature. ‘The receiving department does all of the following excep!: a b. es d. Unloads and unpacks incoming materials, Keeps informed concen j ‘3 schedules. ning sources of'supply, prices, and delivery Matches materials received with Avranges for inspection, when fee on purchase ofderepurchasing Moteriats g, Acompany has been order; This would result in: 10. 12, Bo oe ee 103 ing more than the economic order quantity. More frequent order points, Carrying costs greater than order costs, Equal safety stock costs and carrying ensts Carrying costs less than order costs, The mavheting department performs all of the following functions excepi: a b. e. L Compares quantities received with the suppliers’ packing list. Receives purchase requisitions for materials. Keeps informed concerning sources of supply, prices, and delivery schedules. Prepares and places purchase orders. An inventory control technique that reviews quantities on hand periodically and orders sufficient quantities to bring inventory up to a desired level expressed as a number of days' or weeks’ supply is the: ao ee Order cycling method. Two-bin method. ABC inventory contro] method. Min-max method. The factor that need no! be considerd when calculating an inventory economic order quantity (ZO) is: Be SP Safety stock level. Annual stock level. Annual sales of a product. Order-placing costs.tos ter2. 18. Mara Company has correctly computed its Hee ae 500 units Rar anes, tianagement would order in quantities of 800 units, How will Mars’ total annual purchase order cost and total annu carrying cost for an order quantity of 600 units compare to the respective Amounts for an order quantity of 500 units? 14 15, a, b. Gs a Lower purchase order cost and higher carrying cost. Higher purchase order cost and lower carrying cost. Higher purchase order cost and higher carrying cost. Lower purchase order cost and lower carrying cost. ‘The materials control method that is based on the premise that the ‘Auantities of most stock items are subject to definable limits is the: a, b, e da, Min-max method, Cycle review method, Two-bin method, ABC plan. The materials control method that is based on physical observation that an order point has been reached is the: Bore Two-bin method. Gycle review method. Min-max method. ABC plan.purchasing Materials Ty ya 3 e ce hme He ee Smuts (a one-year supply) of material X at P500 each ti ros Fl per unit, and order costa amount bo MURS Le one elated. "The conta tn emery Masscat b inventory amount to 20% of the materials cost. my 405 Rieeeleclabeehah ei inventory earryin, '€ costs and order costs are: a. P1,500 b. P2,000: « P 500 a. P1,000 2. There are 1,000 trolls in stock, and 1,500 are due in from orders that were placed previously. The company sells Trolla at the rate of 100 per day and finds that it takes an average of 20 days for an order to be received. Because usage and lead times are known with certainty and because the company has determined that an order must be placed now, the desired safety stock quantity must be equal to: a 600 units b 1,000 units ce. 2,500 units d. 100 units 4. dess Company has @ plant that manufactures transistor radios. One component is an XT transistor. Expected demand ia for 5,200 of these transistors in March 2018. Jess estimates the ordering cost per purchase order to be P250. The carrying cost for one unit of XT in stock is P5. 2 What is the EOQ for the XT transistor? a 721 b. 521 ®. 620 a. 720a 4. a Chapter 2 the number of deliveries of XT in Using the data in No, 3, what is April 2018? a. 7.2 (rounded up to 8 deliveries in March 2018) b. 82 (rounded up to 9 deliveries in March 2018) c. 6.5 (rounded up to 7 deliveries in March me) d. 5.8 (rounded up to 6 deliveries in March 2018) Basketball, Inc. operates a megastore featuring sports merchandise, It uses EOQ decision model to make inventory decisions. It is now considering inventory decisions for its PBA's jerseys product line. This is a highly popular item. Data for 2016 are: * Expected annual demand for PBA 10,000 * Ordering costs for purchase order P225 * Carrying costs per year P10 per jersey Each jersey costs Basketball, Inc. P40 (12% x P40 purchase price) plus P5.20 in relevant insurance, handling, and theft-related costs. The purchasing lead time is 7 days, Basketball, Inc. is open 365 days ayear, What is the EOQ? a. 671 jerseys b. 751 jerseys c. 550 jerseys “ d, 851 jerseys Using the data in No. 5, what is the number of orders that will be placed each year? a. 15 orders b. 20 orders ¢. 25 orders d. 30 orderspurelsing Materials 107 1. the data i 7. Using the data in No. §, what is the reorder point? Rounded a. 192 jerseys b. 180 jerseys ¢, 200 jerseys d. 105 jerseys 8, The annual demand for tennis rac costs amount to P2 per unit. Ord Ps. The optimum order quanti (rounded to the nearest unit); ‘quets is 50,000 units, and carrying ler costs of the company amount to ty in units for tennis racquets is a. 500 b. 250. c. 100. d. 625 9, The following data is available for Taurus Company's material YY: Annual usage in waits ==~=~=~=~SCSTS OD Working days per year 250 Normal lead time in working days 80- Maximum lead time in working days 70 Assuming that the units of Material YY will be required evenly throughout the year, the order point would be: a. 2,800 b. 2,000 c. 2,105 d. 1,200 10. The Leo Company wishes to determine the amount of safety stock that it should maintain for Product D to result in the lowest cost. The following information is available: Stockout cost ‘P80 per occurrence Carrying cost of safety stock * per unit Number of purchase orders per year11. 12. Chaprer 2 The options available to Leo are as follows: Units of Safety Stock Probability of Running owt of Safe Stock 10 50% 30. 30% 50 10% 55 5% What is the number of units of safety stock that will result in the lowest cost? a. 55 b. 50 c. 50 d. 10 Aries Company has an order point at 1,400 units, usage during normal lead time of 600 units, and an EOQ of 2,000 units. Its maximum inventory assuming normal lead time and usage, would be: a. 2,800 units b. 3,400 units ¢, 2,000 units 4. 1,200 units The following data refer to various annual costs relating to the inventory of a single product company: Units transportation cost on purchases P20 Storage cost per unit 1g Insurance cost per unit “10 Annual interest foregone from alternate investment of funds P800 Annval number of units required 10,000 ea What is the annual carrying cost per unit? a. P30 b. Paz ce. P50 d. P22purchasing Marerials 1. The following data relates to Bull Company's Material X: == 09 Annual usage in units -—-"—————______ Working deve er year a8 Normal lead time in workin, : Maximum lead time eae 20 in working days 8 Assuming that the units of Material X will b L throughout the year, the safety stock “a ade mot eld ben Safety Stock Order Point a. 750 1,350 b. 600 750 Ge 600 350 d 750 600 14, Venus Manufacturing Company uses 1,000 units of Chip annually in its production. Order costs consist of P10 for placing a long-distance eall to make the order and P40 for delivering the order by truck te the company warehouse. Each Chip coats P100 and the carrying costs are estimated at 15.625% of the inventory cost. What is the economic order quantity for Chip? a 80 b 90 ce. 100 d. 120 15. Using the data in No. 14, what is the total order cost? a. P625 b. P50 cc. P525 d. P6650 i i ir? 16, Using the data in No. 14, what is the carrying cost for the yea’ a. P625 “bh. P650 ©. P55O s d. P5256_—_Gheptera ie — ‘i ata to assist i 17. Pluto Company bas developed the eae . “ controlling one of its material nee _—_—_—_——— 1,000 liters Economic order quantity 100 liters Average daily use 120 liters Maximum daily use 2950 days Working days per year 140 liters Safety stock i — 1.00 per liter per year a a a inventory 7 working days 18. 19. 20. What is the reorder point? a, 840 liters b, 800 liters c. 900 liters d. 830 liters Using the data in No. I7, what is the average inventory? a, 640 liters b. 680 liters c. 740 liters da. 700 liters Using the data in No, 17, what is the maximum inventory assuming normal lead time and usage? a. 1,140 liters b, 1,400 liters e, 1,200 liters d. 1,240 liters Using the data in No. 17, what is the cost of placing one order? a, P20 b, P26 c. P30 ad P35phasing Materials ——— mn gi. The Cloth Center, Ine, buys and se iolueitlal and woe ae Us fabries to a wide range of 2 ae of — Product it carries is denim for the denim cloth pays all incoming frayger ing bags. The supplier Bee ‘coming freight. No incom: of oan ms necessary because the supplier has a eres de svering Jee geality, Merchandise. The purchasing officer of the Cloth Center, Inc. has collected the following information: Annual demand for denim loth Ordering costs per purchase order "peo Carrying costs per year 205 of purchase costs Safety stock requirements None Cost of denim cloth PS per year The purchasing lead time is 2 weeks, The Cloth Center is open 250 days a year (50 weeks for 5 days a week) What is the EOQ for denim cloth? 2,000 yards 2,200 yards 1,500 yards 2,500 yards Pree Using the data in No, 21, what is the number of orders that will be placed each year? 22, a, 10 orders b, 12 orders ce. 15 orders d, 20 orders 23, Using the data in No. 21, what is the reorder point for denim cloth? a. 800 yards b. 400 yards «. 500 yards d. 700 yardsChopter 2 H2 _ per 2 jals Purchases Recording Raw Mater! i A Big Manufacturers, Inc. located at 123 Molave pros Lisiite ve, Quezon City, has an effective system of internal oon trol. of April, 2018, the following transactions occurred: i i i Purchasin April 4: Purchase Requisition 178 received in the ing Department. Purchase Order 144 is issued. The following materials are requisitioned and ordered: —————————— Ss ”~—CO™*éCS Units Material No. Deseription Purpose 4,380 103 2x4’ plastic sheeting ‘Stores B40 122 8'x5' plastic sheeting ‘Stores 1,890 142, 4'x6' plastic sheeting ‘Stores 14 All materials listed on Purchase Order 144 are received. Receiving Report 403 is completed. 14 All materials listed on Receiving Report 403 went to the storeroom. 19: Debit Memorandum 085 is prepared. 19: Supplier's Invoice 539 (shown below) is received. Disbursement Voucher 740 is prepared and sent to the accounting department. Small Products, Inc. S4 West Avenue Cebu City Sold to: Big Manufacturers, Inc. ‘onal: we 123 Molave Street Foirview Avenue, Quezon City Date = 4H17/2018 Date of Order Gust. Order No ‘Term Shipped Via FOB. ‘April Md 3410, 2/20 jeder Quezon City DESCRIPTION I tos 2 X 4" plastic ahecting 122 — 3' X'5* plastic sheeting 142 ~ 4°.X 6" plastic sheeting PU, 778.00Materials pcos equtired: Red’ -epare the Purchase is charged to Materi, purchasing agent. 3, Prepare Receiving Report 403, ‘ 103. Note t pi se = the supplier because of imperfections in the sheets for the 2x 4! thesia Cah a fieigbts are 1/10 (10) ofa kilo each Hf fa kkilo each for the 3' x §' sheets, anc 4 (50) of 2 kilo each for the 4’ x 6 sheets. Record the weights of the livered by Padex on April 14, 2018 name under Received by. Assume rvisor. Sign Receiving Report 403 Order 144 te Small Produ als account No. 121 3, Ine, The purchas: Sign your name as the hat 140 of the 2 x 4’ cheots are that you are the stereroom supe: oeesiing OAT the materials have been turned over to the storcroom. 4. Assume that you are the Purchasing agent. Prepare Debit Memorandum 085 for 140 imperfect the supplier : om ets returned to 4. Prepare Disbursement Voucher 0740 (Check No. 00127). 6. Discuss the procedures Big Manufacturers, Inc. has taken to ensure that it has an effective system of internal control over purchasing materials. Journalize Materials Purchases ‘The following are the transactions of Eagle Company for the month of October 2018: Oct. 4: Purchase Requisition 127 for 4,800 units of Material X-54 is prepared by the storeroom clerk, The material is to be ordered from the Veterans Corporation for P21.50 per unit. Terms V 10, n/30. 5; Purchase Order 048 is prepared for materials requisitioned on Req! ion 127. 21: Materials ordered from Veterans Corporation on Purchase Order 048 are received. Of the 4,800 units, all are rejected for imperfections and returned at once. Receiving Report O11 is prepared. The purchase invoice is included in the carton,Chapier > M4 ee siete ncterd 21: A debit memorandum to the Veterans Corporation for material returned is prepared. 21: Materials received to transferred to the storeroom ledger. 24: Disbursement Voucher 014 to prepared for the amount owed on 26: A check to Veterans Corporation discount, is prepared and mailed. gl journal form the transactions needing : , e Corporation ar rom Veterans a day ft aad entered in the materials veterans Corporation is the firm's mvoice. for the amount due, lesg Required: Record in gener: entries. Record Disbursement Voucher ‘The following vouchers were recorded by Jomig Manufacturing Company during the month of March 2018: a. ‘Voucher 031 payable to the Lim Supply Company. The invoice was for 1,380 units of Material A87 at P12.95 each. The receiving report indicates that 1,380 were received. None were defective. b. Voucher 032 payable to Tan Corporation, The invoice was for 4,398 units of Material B113 at P9.63 each and 5,800 units of Materials C189 at P10.41 each. The receiving report indicates that all materials ordered were received. However, 250 units of Material C189 were damaged in transit and were réturned to the supplier. A debit memorandum was prepared. ¢. Voucher 033 payable to Sy Company. The invoice was for 2,800 units of material D28 at P7.68 each, The receiving report indicates that only 2,200 units were received. A debit memorandum for the shortage was prepared. d. Voucher 034 payable to Ong Company. The invoice was for the following: 6,800 units of Material E87 at P7.90 each; 7,930 units of Material F83 at P11.30 each; 5,750 units of Material G97 at P8.72 each; and 4,200 units Material H30 at P5.90 each. The receiving report indicates that the units ordered were received except for Material G97, what was 900 units short, In addition, 200 units of Material E87 were defective and were returned to th i it memorandum was prepared. = supebpe asco Required: For each voucher determine the amount of the voucher and record it in the voucher register. Foot the columns.