Cost Accounting Unit-2 Element of Cost : Meterial Important Question Answer [ Gauhati University Bcom 4th Sem]

 

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COST ACCOUNTING NOTES 

Unit 2

ELEMENT OF COST : MATERIAL

Q.1 (A). Fill in the blanks with appropriate word or words : 

(i)_____ shows the quantity of materials only.

Ans: Bin Card

(ii)_____ represents the quantity of materials which must be maintained all the times to keep the production unaffected due to shortage.

Ans: Minimum Stock level.

(iii) The Purchase requisition is prepared by_____

Ans: Store keeper

(iv) In ABC analysis 'A' stand for_____.

Ans: Costlier material

(v) Materials should be issued by the store keeper against____slip. 

Ans: Requisition

(vi) Stock verification sheets are maintained to record the resul of______.

Ans: Physical verification

(vii) Store Ledger is kept and maintained in_____.

Ans: Cost Office

(viii) Goods Received Note is prepared by the______.

Ans: Receiving department 

(ix) Transfer of surplus material from one job or work is recorded is_____.

Ans: Material transfer note

(x)_____is discount allowed to the bulk purchaser. 

Ans: Quantity Discount

(xi) ______is a document which records the return of unused materials. 

Ans: Material Return note.

QI(B). State whether the following statement is 'True' or 'False',

(i) Waste and scrap of material have small realization value. 

Ans : False

(ii) Slow moving materials have a high turnover ratio. 

Ans : False

(iii) Bin Card are not the part of accounting records.

Ans: True

(iv) ABC analysis is based on the principle of management by exception. 

Ans: True

(v) Store ledger is maintained inside the stores by store keeper. 

Ans: False 

(vi) Slow moving items are those the turnover ratio of which is low. 

Ans: True 

(vii) LIFO method of pricing issues is useful during periods of inflation.

Ans: True

(viii) In period of rising prices, profit and tax, liabilities under LIFO would be lower than under FIFO.

Ans : False 

(ix) Reordering level is normally fixed between minimum level and maximum level.

Ans: True

(x) In LIFO method, closing stock is valued at oldest prices of materials in stock. 

Ans: True

(xi) Bin card is maintained by the cost accounting department.

Ans: False

(xii) Bin card shows quantity and values of stores.

Ans: False

(xiii) The purchase requisition is prepared by the purchasing department.

Ans: False

(xiv) The purchase order is prepared by the purchasing department. 

Ans: True

Q1(C). Choose the correct alternative :

(i) Material control covers :

(a) Purchase of material 

(c) Storing of material

(b) Issue of material 

(d) All of the above

Ans : (d) All of the above

(ii)In ABC analysis 'A' category includes: 

(a) Materials whose consumption value is very high.

(b) Materials whose consumption

value is moderate.

(c) Materials whose consumption value is low. 

(d) None of the above

Ans: (a) Materials whose consumption value is very high. 

(iii) Just-In-Time (JIT) approach is applied in which of the management following cases?

(a) Material pricing 

(b) Inventory

(c) Cost sheet preparation 

(d) EOQ

Ans: (b) Inventory management 

(iv) Guiding factors for stores requisition is:

(a) minimum stock 

(c) Reorder level level

(b) maximum stock 

(d) All of the above level

Ans : (c) Reorder level 

(v) In case of rising price level, the most suitable method for valuing material issued is : 

(a) FIFO

(b) LIFO

(c) Simple Average 

(d) weighted average

Ans : (b) LIFO

(vi) Which of the following is considered as normal loss of material?

(a) Pilferage

(b) Loss by fire

(c) Loss due to careless handling of material

(d) None of the above 

Ans : (c) Loss due to careless handling of material

(vii) Contineous stock tracking is a part of (a) ABC analysis

(b) Annual stock tracking 

(c) Perpetual Inventory 

(d) None of these

Ans : (c) Perpetual Inventory

(viii) Which of the following considered as accounting record?

(a) Bin Card 

(b)Bill of material

(c) Store ledger 

(d) None of these

Ans: (c) Store ledger

SHORT ANSWER TYPE QUESTIONS

Q2. What is Inventory?

Ans: Inventory is the term for the goods available for sale and raw materials used to produce goods available for sale. Inventory represents one of the most important assets of a business because the turnover of inventory represents one of the primary sources of revenue generation for the owner of the business. Thus, the term inventory or stock comprises

(i) Raw material,

(ii) Work-in-Progress, and

(iii) Finished Products.

Q3. What is Inventory control?

Ans: Inventory control may be defined as "systematic control and regulation of purchases, storage and uses of material in such a way so as to maintain an even flow of production and at the same time avoiding excessive investment in inventories.

Q4. What is Bin Card?

Ans: In cost accounting, bin card is used to mean a document that keeps a record of the items held in stores. Bin Implies a container or space to keep materials, and with each bin, a card is placed, that comprises of details of material received, issued and returned. Moreover, it contains relating to the number of items, their description and relevant notes, if any.

Q5. What is Stores Ledger?

Ans: Stores Ledger is used to record both quantity and amount of receipts and issues. It is a document or statement that keeps the records of the value and quantity of different stock items issued, received and their closing balance. It is often compared with Bin cards as both of these statements are used to record stock materials.

Q6. Draw the specimen of Bin Card.

Ans : DOWNLOAD EBOOK FOR COMPLETE SOLUTION

 Q7. Draw the specimen of stores ledger.

Ans:DOWNLOAD EBOOK FOR COMPLETE SOLUTION

Q8. What is Re-Ordering Level?

Ans: When the quantity of materials reaches a certain level than fresh order is sent to procure materials again. The order is sent before the materials reach minimum stock level. Re-ordering level is fixed between minimum level and maximum level. Re-ordering level is fixed with following formula:

Re-ordering Level = Maximum Consumption x Maximum Re- ordering period

Q9. What is minimum Level?

Ans: This represents the quantity which must be maintained in hand at all times. If stocks are less than the minimum level, then work will stop due to shortage of materials.

Minimum Stock Level = Re-Ordering Level - (Normal consumption x Normal Reorder Period)

Q10. What is maximum Level?

Ans: It is quantity of material beyond which a firm should not exceed its stocks. If the quantity exceeds maximum limit then it will be termed as overstocking. A firm avoids overstocking because it will result in high material costs. Overstocking will lead to the requirement of more capital, more space for storing the materials and more chances of losses from obsolescence.

Maximum stock level = (Reordering level + Reordering quantity) - (minimum consumption x minimum reordering period)

Q11. What is Average Stock Level?

Ans: Average Stock Level = Minimum Stock Level + Reorder quantity or minimum level + maximum level 2 2 Average stock level =

Q12. What is Danger Level?

Ans: It is the level at which normal issue of raw materials are stopped and only emerging issues are only made. This a level fixed usually below the minimum level. When the stock reaches this level very urgent action for purchases is indicated. This presupposed that the minimum level contains a cushion to cover such contingencies. Danger level can be determined with the following formula:

Danger Level = Average consumption x maximum reorder period for emergency purchases.

Q13. What is Just-in-Time (JIT) inventory system?

Ans: Just-In-Time (JIT) is a production strategy that strives to improve a business return on investment by reducing in-process inventory and associated carrying costs. Inventory is seen as incurring costs, or waste, instead ofadding and storing value, contrary to traditional accounting. In short, the Just-In-Time (JIT) inventory system focuses on "the right material, at the right time, at the right place and in the exact amount" without the safety net of inventory.

Q14. What is inventory turnover ratio?

Ans: Inventory turnover ratio signifies a ratio of the value of materials consumed during a given period to the average level of inventory held during that period. The ratio is worked out on the basis of the following formula: Inventory turnover ratio value of material consumed during the period value of average stock held during the period. The purpose of the above ratio is to ascertain the speed of movement of a particular item.

LONG ANSWER TYPE QUESTIONS

Q15. What is Economic order quantity? How is it calculated?

Ans: DOWNLOAD PDF EBOOK

Q16. What is ABC Analysis? Mention the advantages of ABC Analysis.

Ans: The "ABC Analysis" is an analytical method of stock control which aims at concentrating efforts on those items where attention is needed most. It is based on the concept that a small number of the items inventory may typically represent the bulk money value of the total materials used in production process, while a relatively large number of items be subjected to greater degree of continuous control.

Under this system, the materials stocked may be classified into a number of categories according to their importance i.e., their value and frequency of replenishment during a period. The first category (we may call it Group 'A' items) may consist of only a small percentage of total items handled but combined value may be a large portion of the total stock value. The second category, naming it as Group 'B' items, may be relatively less important. In the third category, consisting of Group 'C' items, all the remaining items of stock may be included which are quite large in number but their value is not high.

The advantages of ABC Analysis are:

(a) Closer and stricker control of those items which represent a major portion of total stock value is maintained.

(b) Investment in inventory can be regulated and funds can be utilized in the best possible manner.

(c) With greater control over the inventories, savings in material cost will be realised.

(d) It helps in maintaining enough safety stock for 'C' category of items.

(e) Scientific and selective control helps in maintenance of high stock turnover ratio.

Q17. Write a note on VED Analysis.

Ans: DOWNLOAD EBOOK

Q18. Mention the advantages of Just-In-Time System.

Ans: The advantages of Just-In-Time system are as follows:

(a) Increased emphasis on supplier relationships. A company without inventory does not want a supply system problem that creates a part shortage. This makes supplier relationship extremely important.

(b) Suppliers come in at regular intervals throughout the production day. Supply is synchronized with production demand and the optimal

amount of inventory is on hand at any time.

(c) Reduces the working capital requirements, as very little inventory is maintained.

(d) Minimizes storage space.

(e) Reduce the chance of inventory obsolescence or damage.

Q19. Distinguish between Bin Card and Store Ledger.

Ans : Download PDF FOR COMPLETE SOLUTION

Q20. Write short notes on:

(i) Two-bin system

(ii) Purchase requisition

Q22. Explain the FIFO method of valuation of materials issue along with its advantages and disadvantages.

Ans: It is a method of pricing the issue of materials in the order in which they are purchased. In other words, the materials are issued in the order in which they arrive in the store. This method is considered suitable in times of falling prices because the material cost charged to production will be high while the replacement cost of materials will be low. In case of rising prices this method is not suitable.

Advantages of FIFO :

(i) It is simple and easy to operate

(ii) In case of falling prices, this method gives better results.

(iii) Closing stock represents the market prices.

Disadvantages of FIFO :

(i) If the prices fluetuate frequently this method may lead to clerical errors.

(ii) In case of rising prices this method is not advisable.

(iii) The material costs charged to same job are likely to show different rates.

Q23. Explain the LIFO methodof valuation of materials issue along with its advantages and disadvantages.

Ans: DOWNLOAD PDF FOR COMPLETE SOLUTION

Q28. What is Bin Card? What are its advantages and disadvantages?

Ans :- DOWNLOAD PDF FOR COMPLETE SOLUTION

Q29. What is Stores Ledger? What are its advantages and disadvantages?

Ans: Stores Ledger is used to record both quantity and amount of receipts and issues. It is a document or statement that keeps the records of the value and quantity of different stock items issued, received an their closing balance. It is often compared with bin cards as both of these statements are used to record stock materials.

Advantages of Stores Ledger :

(i) They help in knowing the quantity as well as the value of available stock materials.

(ii) Internal control in the management of inventory items can be established using stores ledger.

(iii) They facilitate calculating the cost and quantity of the actually available inventory items during annual accounts and audit.

(iv) The company owners become alert when the number of stock items falls below the minimum level as per the stores ledgers.

(v) It may be in manual or computerized form.

Disadvantages of Stores Ledger :

(i) The large number of columns found in the stores ledgers make the computing process complicated.

(ii) There are chances of clerical errords, as too many columns have to be filled during the updated process.

(iii) The records found in store ledgers are not detailed. They are mere summarisations of the actual transactions.

(iv) It leads to overlapping of work.

Q30. Explain the various methods of pricing the issue of materials.

or

Explain the various methods of inventory valuation.

Ans : DOWNLOAD EBOOK 

PRACTICAL PROBLEMS

ECONOMIC ORDER QUANTITY

 Download EBOOK for Practical Problem Solution

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• GU Cost Accounting Chapter wise Important Question Answer and Solved Papers

• GU Bcom 4th Sem Previous years Question paper , Solved Papers and Notes in PDF