THE INSTITUTE OF FINANCE MANAGEMENT
FACULTY OF ACCCOUNTING, BANKING & FINANCE
NTA LEVEL 7: COST ACCOUNTING
ACCOUNTING FOR MATERIAS - REVIEW QUESTIONS
BACHELOR OF ACCOUNTANCY, BACHELOR OF
ACCOUNTANCY WITH INFORMATION TECHNOLOGY
&
BACHELOR OF TAX MANAGEMENT
SEM 2 2022/23
QUESTION ONE
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
List items that may constitute materials of (a) a manufacturing company (b) a service
provision company.
Explain the purpose of material management.
What do you understand by Maximum Stock, Minimum Stock, and Re-order Level?
What do you understand by Bin Card and Stores Ledger?
Why planning for materials purchase and control of material inventory is crucial in
business operations?
What is free stock balance and what purpose does it serve?
What is a danger stock level and how does it differ from minimum stock level?
What is the difference between periodic inventory system and reorder level inventory
management system? Explain the advantages and disadvantages of each of them.
QUESTION TWO
On each of the following items, comment on whether they constitute cost of material:
i)
Cost of delivering material.
ii)
Trade or quantity discount
iii)
Cash discount
iv)
Container packaging costs
v)
VAT on material purchased
vi)
Customs duty
vii)
Store keeper’s salary
viii) Quality inspection charged by independent consultant to examine the quality of specialized
material during delivery
ix)
Rent of the warehouse
x)
Salary of the procurement officer
QUESTION THREE
The following transactions were completed by the ABC company:
a) Inventory of materials on the average costing basis was TZS 440,000 and represented
ledger card balances of 8,000 units, but the physical count showed only 7,780 units
b) Materials of TZS 15,000 issued to job 202 should have been charged to the Maintenance
Department
c) Excess direct materials received from the production department amounted to TZS 38,200
for job 209
d) Materials returned to supplier XYZ amounted to TZS 46,500 including freight costs TZS
6,500 which was paid in cash.
e) Finished goods returned by customer CTZ cost TZS 150,000 for which the sales value was
TZS 210,000
f) Materials requisitions for production department totaled TZS 481,450 of which TZS
21,450 represented indirect materials.
g) Materials purchased and placed in the warehouse were TZS 615,000 Freight expenses
applicable to direct materials was TZS 7,000
h) Indirect materials returned to the warehouse by the production department amounted to
TZS 15,000
Required:
Prepare journal entries for the above transactions and the Materials control account.
QUESTION FOUR
Gamala Ltd has problem of identifying inventory control levels for one of its materials used in
manufacturing process. The maximum material consumption per day is 170 units; average
consumption is 120 units while the minimum consumption is 70 units. The cost accountant of the
company managed to calculate optimum order size which is 500 units and experience shows that
it normally take 6 to 10 days from when an order is made to delivery.
Required:
Calculate three control levels i.e. Reorder level, maximum level and safety stock then
explain their importance
QUESTION FIVE
Janja Ltd produces and supply plastic products for use in food restaurants in Dar es salaam city.
One of its products is specialised plastic tables for restaurants. The company is faced with a
problem of identifying an order size that can reduce total cost of ordering and holding stock of
materials used in manufacturing process. Currently, annual material requirement of the company
is 21,000 units. The cost of processing an order is TZS 30,000 and the annual carrying cost per
unit is estimated to be 0.4% of the ordering cost.
Required:
i)
Assist management of the company to calculate annual ordering cost, annual carrying
cost and their sum when the company order all units required once in a year; twice in a
year; three times in year and four times in a year. (Assume equal quantities are ordered
every time when an order is placed)
ii)
Based on your calculation of part one above, advice the company the appropriate
number of orders to make in a year
iii)
Calculate EOQ then comment whether your advice in ii) above still holds.
QUESTION SIX
Material Code 5060 has the following receipts and issues:
Date
Receipts from supplier
1 October
GRN 712: 1,400 at TZS 17,000
3 October
5 May
GRN 817: 1,600 at TZS 13,000
14 May
15 May
18 May
GRN 902: 1,200 at TZS 15,000
Issue to Production
Requisition 60: 1,000
Requisition 72: 1,000
Requisition 75: 800
Requisition 84: 1,000
Note: On 20th May 200 units were returned to store from production department.
Required:
Prepare stock record for May, using (i) FIFO (ii) LIFO and (iii) WAM
QUESTION SEVEN
A manufacturing company purchases 30,000 units of a particular material per year at a unit cost
of TZS 3,000, the ordering cost per order is TZS 120,000 and the inventory carrying cost is 15%
of the unit cost.
Required: Find out the optimum quantity to be ordered and number of orders to be placed in a
year.
Note: Other review questions are found at the end of Chapter 14- Materials: Inventory Control
shared in PDF.