FNSACC507A–ProvideManagementAccountingInformation
MATERIALSCOSTING
ACCOUNTING FOR MATERIALS
InventoryRecordingSystem
1.Perpetual
2.Periodic
InventoryCostingSystem
1a.F.I.F.O.
1b.WeightedAverage
2a.F.I.F.O.
2b.WeightedAverage
*******
1.FastFerrarisLtdmanufacturesandsellsFerrarismadetoorder.Thecompany
usesaperpetualinventorysystem.DuringthemonthofMay2012,thecompanyhadthe
followingtransactionsforALU104(whichisaspecialtypeofaluminumusedtomakebodyof
eachcar):
No.units
Unitcost
Total cost
May
1
Openingbalance
1,000
$8.00
$8,000
5
Purchaseoncredit
600
$8.53
$5,118
9
IssuestoJOB120
200
13
Purchaseoncredit
600
$9.00
$5,400
19
IssuestoJOB250
900
22
IssuestoJOB340
300
25
Returnstostoreroom fromJOB340
200
27
Purchaseoncredit
200
$10.00
$2,000
30
IssuestoJOB500
600
1a.PERPETUALSYSTEM–F.I.F.O.Method
Required:
a.AssumingtheunitcostofinventoryisassignedusingtheFirst‐In,First‐Outmethod,prepare
aninventoryledgercard(stockcard)torecordthesetransactions.
b.PrepareageneraljournalentrytorecordthetotalpurchasesforMay2012.
c.PrepareageneraljournalentrytorecordthetotalissuesforMay2012.
d.Prepareageneraljournalentrytorecordthereturnofmaterialsfromproductiontothe
storeroom.
e.Aphysicalstocktakewasconductedattheendofthemonthwhichshowsonly540unitsofthis
materialonhand.Prepareageneraljournalentrytorecordthecostofanyinventoryvariance.
1b.PERPETUALSYSTEM–WeightedAverageMethod
Required:
a.AssumingtheunitcostofinventoryisassignedusingtheWeightedAveragemethod,prepare
aninventoryledgercard(stockcard)torecordthesetransactions.
b.PrepareageneraljournalentrytorecordthetotalpurchasesforMay2012.
c.PrepareageneraljournalentrytorecordthetotalissuesforMay2012.
d.Prepareageneraljournalentrytorecordthereturnofmaterialsfromproductiontothe
storeroom.
e.Aphysicalstocktakewasconductedattheendofthemonthwhichshowsonly540unitsofthis
materialonhand.Prepareageneraljournalentrytorecordthecostofanyinventoryvariance.
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FNSACC507A–ProvideManagementAccountingInformation
MATERIALSCOSTING
SOLUTIONto1a.
a.
Date
May
Qty
1
5
600
9
13
600
19
22
25
STOCK
RETURN
27
200
30
31
STOCKTAKE
ADJUSTMENT
TOTALSPURCHASES&ISSUES
Purchases(+)
UnitCost
($)
8.53
9.00
10.00
PERPETUALSYSTEM– F.I.F.O.Method
Total($)
Qty
Issues (‐)
UnitCost
($)
Total($)
Qty
Adjustments
UnitCost
($)
Total($)
1,000
1,000
600
1,600
800
600
1,400
800
600
600
2,000
5,118
200
8.00
1,600
800
100
8.00
8.53
6,400
853
900
300
8.53
7,253
2,559
5,400
200
8.53
1,706
2,000
400
200
600
8.53
9.00
3,412
1,800
5,212
‐60
12,518
Qty
9.00
‐540
500
600
1,100
200
600
800
400
600
1,000
400
600
200
1,200
400
200
600
340
200
540
Balance
UnitCost
($)
8.00
8.00
8.53
8.00
8.53
8.00
8.53
9.00
8.53
9.00
8.53
9.00
8.53
9.00
8.53
9.00
10.00
9.00
10.00
9.00
10.00
Total($)
8,000
8,000
5,118
13,118
6,400
5,118
11,518
6,400
5,118
5,400
16,918
4,265
5,400
9,665
1,706
5,400
7,106
3,412
5,400
8,812
3,412
5,400
2,000
10,812
3,600
2,000
5,600
3,060
2,000
5,060
16,624
2
FNSACC507A–ProvideManagementAccountingInformation
MATERIALSCOSTING
b.
Dr
Rawmaterialscontrols $,12,518
GSTpaid
$1,252
Cr
Accountspayable
$13,770
Torecordpurchaseofrawmaterials
c.
Dr
WIP
$16,624
Cr
Rawmaterialscontrol $16,624
Torecordissueofdirectmaterialstoproduction
d.
Dr
Rawmaterialscontrol $1,706
Cr
WIP
$1,706
Torecordreturnofdirectmaterialsfromproductiontostoreroom
(NOTE:returnstostoreroomareclassifiedasnegativeissuesinthetextbook)
e.
Dr
COGS $540
Cr
Rawmaterialscontrol $540
Torecordstocktakeadjustment(60units@$9.00ea.)
3
FNSACC507A–ProvideManagementAccountingInformation
MATERIALSCOSTING
SOLUTIONto1b.
a.
Date
May
1
Purchases(+)
Qty
UnitCost
($)
5
600
9
13
8.53
PERPETUALSYSTEM– WeightedAverageMethod
Total($)
9.00
Issues (‐)
UnitCost
($)
Total($)
Qty
Adjustments
UnitCost
($)
Total($)
Qty
1,000
5,118
600
Qty
1,600
200
8.20
1,640
Total($)
8,000
8.20
13,120
8.20
11,480
2,000
8.44
16,880
1,400
5,400
Balance
UnitCost
($)
8.00
(note1)
19
900
8.44
7,596
1,100
8.44
9,284
22
300
8.44
2,532
800
8.44
6,752
25
STOCKRETURN
1,000
8.44
8,440
1,200
8.70
10,440
600
8.70
5,220
540
8.70
4,698
27
200
10.00
30
31
STOCKTAKE
ADJUSTMENT
TOTALSPURCHASES&ISSUES
200
8.44
1,688
2,000
600
8.70
5,220
‐60
12,518
16,988
8.70
‐522
4
FNSACC507A–ProvideManagementAccountingInformation
MATERIALSCOSTING
b.
Dr
Rawmaterialscontrols $12,518
GSTpaid
$1,252
Cr
Accountspayable
$13,770
Torecordpurchaseofrawmaterials
c.
Dr
WIP
$16,988
Cr
Rawmaterialscontrol $16,988
Torecordissueofdirectmaterialstoproduction
d.
Dr
Rawmaterialscontrol $1,688
Cr
WIP
$1,688
Torecordreturnofdirectmaterialsfromproductiontostoreroom
(NOTE:returnstostoreroomareclassifiedasnegativeissuesinthetextbook)
e.
Dr
COGS $522
Cr
Rawmaterialscontrol $522
Torecordstocktakeadjustment(60units@$8.70ea.)
NOTE1:
WAUnitCost =
ValueB/F+ValuePurchases/QtyB/F+QtyPurchases
=
$8,000+$5,118/1,000+600
=
$13,118/1,600
=
$8.20
5
FNSACC507A–ProvideManagementAccountingInformation
MATERIALSCOSTING
2.EnigmaLtdmanufacturesandsellscustom‐madewoodenpuzzlesviatheironline
store.Thecompanyusesaperiodicinventorysystem.DuringthemonthofMarch2012,the
companyhadthefollowingtransactionsforPINE205(whichisatypeofwoodusedtomake
puzzlesforchildren):
March
No.units
Unitcost
Totalcost
1
Openingbalance
1,100
$8.00
$8,800
5
Purchaseoncredit
600
$8.50
$5,100
13
Purchaseoncredit
600
$9.00
$5,400
27
Purchaseoncredit
200
$10.00
$2,000
Aphysicalstocktakewasconductedattheendofthemonthwhichshows500unitsofthis
materialonhand.
2a.PERIODICSYSTEM–F.I.F.O.Method
Required:
a.AssumingtheunitcostofinventoryisassignedusingtheFirst‐In,First‐Outmethod,prepare
aninventoryledgercard(stockcard)torecordthesetransactionsandcalculatethetotalcostof
materialsissued.
b.PrepareageneraljournalentrytorecordthetotalpurchasesforMarch2012.
c.PrepareageneraljournalentrytorecordthetotalissuesforMarch2012.
2b.PERIODICSYSTEM–WeightedAverageMethod
Required:
a.AssumingtheunitcostofinventoryisassignedusingtheWeightedAveragemethod,prepare
aninventoryledgercard(stockcard)torecordthesetransactionsandcalculatethetotalcostof
materialsissued.
b.PrepareageneraljournalentrytorecordthetotalpurchasesforMarch2012.
c.PrepareageneraljournalentrytorecordthetotalissuesforMarch2012.
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FNSACC507A–ProvideManagementAccountingInformation
MATERIALSCOSTING
SOLUTIONto2a.
a.
PERIODIC SYSTEM– F.I.F.O.Method
March
1
Openingbalance
Add:
5
Purchaseoncredit
13
Purchaseoncredit
27
Purchaseoncredit
Costofmaterialsavailableforuse
Less:
31
Closingbalance
Costofmaterialsissued
Qty
1,100
600
600
200
2,500
200
300
2,000
UnitCost($)
8.00
8.50
9.00
10.00
10.00
9.00
Total($)
8,800
5,100
5,400
2,000
21,300
2,000
2,700
16,600
Thevalueoftheclosinginventorybalanceof500unitswasdeterminedasshownabovebecause
undertheF.I.F.O.method,itisassumedthattheearlieritemsofstockareconsumedfirst.
Therefore,theclosingstockismadeupofthemostrecentinventorypurchases.
b.
Dr
Rawmaterialscontrols $,12,500
GSTpaid
$1,250
Cr
Accountspayable
$13,770
Torecordpurchaseofrawmaterials
($valueofcostofmaterialsavailableforuseLESS$valueofopeningbalance)
c.
Dr
WIP
$16,600
Cr
Rawmaterialscontrol $16,600
Torecordissueofdirectmaterialstoproduction
Pleasenote;
Undertheperiodicsystem,therearenoentriesfor:
 Materialreturnsfromthefactorytothestoreroom
 Stocktakeadjustments(stockshortagesorsurpluses)
Thesetransactionshavetobetreatedaspartofmaterialissuesbecauserecordsarenot
maintainedforeveryinventorymovement.
7
FNSACC507A–ProvideManagementAccountingInformation
MATERIALSCOSTING
SOLUTIONto2b.
a.
PERIODIC SYSTEM– WeightedAverage Method
March
1
Openingbalance
Add:
5
Purchaseoncredit
13
Purchaseoncredit
27
Purchaseoncredit
Costofmaterialsavailableforuse
Less:
31
Closingbalance
Costofmaterialsissued
Qty
1,100
600
600
200
2,500
500
2,000
UnitCost($)
8.00
8.50
9.00
10.00
8.52
(note2)
Total($)
8,800
5,100
5,400
2,000
21,300
4,260
17,040
b.
Dr
Rawmaterialscontrols $,12,500
GSTpaid
$1,250
Cr
Accountspayable
$13,770
Torecordpurchaseofrawmaterials
($valueofcostofmaterialsavailableforuseLESS$valueofopeningbalance)
c.
Dr
Workinprogress
$17,040
Cr
Rawmaterialscontrol $17,040
Torecordissueofdirectmaterialstoproduction
Pleasenote;
Undertheperiodicsystem,therearenoentriesfor:
 Materialreturnsfromthefactorytothestoreroom
 Stocktakeadjustments(stockshortagesorsurpluses)
Thesetransactionshavetobetreatedaspartofmaterialissuesbecauserecordsarenot
maintainedforeveryinventorymovement.
NOTE2:
WAUnitCost =
ValueB/F+ValuePurchases/QtyB/F+QtyPurchases
=
$8,800+$12,500/1,100+1,400
=
$21,300/2,500
=
$8.52
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FNSACC507A–ProvideManagementAccountingInformation
MATERIALSCOSTING
Activity Notes
Didyounotice…?
PERPETUALINVENTORYSYSTEM
Similarities:
Purchasevaluesremainunchanged.
Differences:
UndertheF.I.F.O.method,youhavetoapplythismethod’sallocationrulewhen
workingoutthevalueofmaterialissues,whereasundertheW.A.method,you
havetoworkouttheweighted‐averageunitcosteachtimematerialsare
purchasedandtheunitcosthaschanged.Thisnewperunitcostistheoneyou
thenusetoworkoutthevalueofanymaterialsissuedtoproductionthereafter.
PERIODICINVENTORYSYSTEM
Similarities:
Theopeningbalanceandthepurchasevaluesremainunchanged.
Differences:
Thepartthatchangesineachcaseistheclosingbalance.
UndertheF.I.F.O.method,theclosingbalanceiscalculatedbyapplyingthe
F.I.F.O.method’sallocationruleBACKWARDS(becauseunderthismethod,itis
assumedthattheearlieritemsofstockareconsumedfirstandclosingstockis
madeupofthemostrecentinventorypurchases).
UndertheW.A.method,theclosingbalanceiscalculatedbymultiplyingthe
closinginventorycountbytheweighted‐averageunitcost.
Undertheperiodicsystem,therearenoentriesfor:
*Materialreturnsfromthefactorytothestoreroom
*Stocktakeadjustments(stockshortagesorsurpluses)
Thesetransactionshavetobetreatedaspartofmaterialissuesbecause
recordsarenotmaintainedforeveryinventorymovement.Basicallystock
variancesduetoe.g.theft,damagesetc.areimpossibletodetermineunderthe
periodicinventorysystem.Thecostofmaterialsissuedisnotdirectly
determinedandanyvariancesthatmayhavebeendetectedusingaperpetual
inventorysystemformpartoftheclosingstockcalculationunderaperiodic
inventorysystem.Materialusage(unitsanddollars)=
Op.balance
+Purchases
=Materialsavail.foruse
–Cl.Balance
Therefore,itisimpossibletodeterminewhetherastockdifferenceoccurred
duringtheperiod.
9