MULTIPLE CHOICES- COMPUTATIONAL

1. A company orders 10,000 units (a one-year supply) of material X at one time. Material X costs
P1 per unit, and order costs amount to P500 each time an order is placed. The costs to carry
Material X in inventory amount to 20% of the material cost.

For an entire year, the inventory carrying costs and order costs are:

a. P1,500
 b. P2,000
c. P 500
d. P1,000

2. There are 1,000 trolls in stock, ang 1,500 are due in from orders that were placed previously.
The company sells trolls 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 saftey stock quantity
must be equal to:

a. 500 units
 b. 1,000 units
c. 2,500 units
d. 100 units

3. Jess Company has a plant that manufactures transistor radios. One component is an XT
transistor. Expected demand is 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.

What is the EOQ for the XT transistor?

a. 721
 b. 521
c. 520
d. 720

4. Using the data in No.

in  No. 3,
3, what is the number of deliveries of XT in April 2018?

a. 7.2 (rounded up to 8 deliveries in

in March 2018)
 b. 8.2 (rounded up to 9 deliveries in March 2018)
c. 6.5 (rounded
(rounded up to 7 deliveries in
in March 2018)
d. 5.8 (rounded up to 6 deliveries
deliveries in March 2018)

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 5. 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 jerse ys
 product line. This is highly popular item. Data for 2018 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 purcahsing lead time is 7 days. Baketball Inc.
open 365 days a year.

What is the EOQ?

a. 671 jerseys
 b. 751 jerseys
c. 550 jerseys
d. 851 jerseys

6. Using the data in No. 5, what is the number of orders that will be placed each year?

a. 15 orders
 b. 20 orders
c. 25 orders
d. 30 orders

7. Using the data in No. 5, what is the reorder point? Rounded.

a. 192 jerseys
 b. 180 jerseys
c. 200 jerseys
d. 105 jerseys

8. The annual demand for tennis racquets is 50,000 units, and carrying costs amount to P2 per unit.
Order costs of the company amount to P5. The optimum order quantity in units for tennis
racquets is (rounded to the nearest unit):

a. 500
 b. 250

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 c. 100
d. 625

9. The followig data is available for Taurus Company’s material YY:

Annual usage in units 10,000

Working days per year 250
 Normal lead time in working days 30
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 c ost. The following information is available:

Stockout cost P80 per occurrence

Carrying cost of safety stock P2 per unit
 Number of purchase orders 5 per year

The options available to Leo are as follows:

Units of Safety Stock Probability of Running out 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

11. 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
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  b. 3,400 units
c. 2,000 units
d. 1,200 units

12. The following data refer to various annual costs relating to the inventory of a single product
company:

Units transportation cost on purchases P.20

Storage cost per unit .12
Insurance cost per unit .10
Annual interest foregone from alternate investment
of funds P800
Annual number of units required 10,000

What is the annual carrying cost per unit?

a. P.30
 b. P.42
c. P.50
d. P.22

13. The following data relates to Bull Company’s Material X:

Annual usage in units 7,200

Working days per year 240
 Normal lead time in working days 20
Maximum lead time in working days 45

Assuming that the units of Material X will be required evenly throughout the year, the safety
stock and order point would be:

Safety Stock Order Point

a. 750 1,350
 b. 600 750
c. 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 call to make the order and P40 for delivering the order
 by truck to the company warehouse. Each Chip costs 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
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 c. 100
d. 120

15. Using the data in No.14, what is the total order cost?

a. P625
 b. P550
c. P525
d. P650

16. Using the data in No.14, what is the carrying cost for the year?

a. P625
 b. P650
c. P550
d. P525

17. Pluto Company has developed the following data to assist in controlling one of its material
inventory items:

Economic order quantity 1,000 liters

Average daily use 100 liters
Maximum daily use 120 liters
Working days per year 250 days
Safety stock 140 liters
Cost of carrying inventory P1.00 per liter per year
Lead time 7 working days

What is the reorder point?

a. 840 liters
 b. 800 liters
c. 900 liters
d. 830 liters

18. Using the data in No. 17 , what is the average inventory?

a. 640 liters
 b. 650 liters
c. 740 liters
d. 700 liters

19. 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
c. 1,200 liters
d. 1,240 liters
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 20. Using the data in No. 17 , what is the cost of placing one order?

a. P20
 b. P25
c. P30
d. P35

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 PROBLEMS

PROBLEMS 2-1
RECORDING RAW MATERIALS PURCHASES

Big Manufacturers, Inc. located at 123 Molave Street Fairview Avenue, Quezon City, has an effective system of
internal control. During the month of April,2018, the following transactions occurred:

 April 4: Purchase Requisition 178 received in the Purchasing Department. Purchase Order 144
is issued. The following materials are requisitioned and ordered:

Units Materials Description Purpose

4,390 103 2’x4’ plastic sheeting Stores

840 122 3’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.

54 West Avenue
Cebu City
Sold to: Big Manufacturers, Inc. Invoice No. 539
123 Molave Street  Date: 4/17/2018
 Fairview Avenue, Quezon City

Date of Order Cust. Order No. Term Shipped Via F.O.B

 April 4 144 2/10, n/30 fedex Quezon City

QUANTITY DESCRIPTION UNIT PRICE AMOUNT

4,390 103- 2’x4’ plastic sheeting P 1.20 P 5,268.00

840 122- 3’x5’ plastic sheeting 1.90 1,596.00
1,890 142- 4’x6’ plastic sheeting 2.60 4,914.00
P 11,778.00

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 Required:
 Prepare the Purchase Order 144 to Small Products, Inc. The purchase is charged to Materials
account No. 122. Sign your name as the purchasing agent.

 Prepare Receiving Report 403. Note that 140 of the 2' x 4' sheets are being returned to the
supplier because of imperfections in the sheets. They need not be replaced. The weights are 1/10
(.10) of a kilo each for the 2' x 4' sheets, 1/4 (.25) of a kilo each for the 3' x 5' sheets, and 1/2
(.50) of a kilo each for the 4' x 6' sheets. Record the weights of the goods accepted. The
shipment is delivered by Fedex on April 14, 2018. Charges are prepaid. Sign your name under
Received by. Assume that you are the storeroom supervisor. Sign Receiving Report 403
indicating that the materials have been turned over to the storeroom.

 Assume that you are the purchasing agent. Prepare Debit Memorandum 085 for 140 imperfect
sheets returned to the supplier via Air 21 motor express.

 Prepare Disbursement Voucher 0740 (Check No. 00127)

 Discuss the procedures Big Manufacturers, Inc. has taken to ensure that it has an effective
system of internal control over purchasing materials.

Problem 2-2: 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
1/10, n/30.
 5: Purchase Order 048 is prepared for materials requisitioned on Requisition 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 011 is
 prepared. The purchase invoice is included in the carton.

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