Question

Cost Accounting | Accounting For Materials | Materials costing Method

Prepare Table

The following information is to be used in costing inventory on September 31: September 1- Beginning balance 6,000 units at P60 per unit. September 4 - Purchased 4,700 units at P70 per unit. September 7 -issued 3,800 units to production September 10 - Issued 2,900 units September 13 - Purchased 6,500 units at P75 per unit. September 17 - Issued to production 5,000 units. September 19 - Materials returned to storeroom from September 17 issuance 1,800 units September 24 - Purchased 4,000 units at P80 per unit. September 25 - Issued to production 4,500 units. Required: A. Assuming, they use the periodic inventory system. Determine the cost of materials used and the cost assigned to the September 31 inventory of materials using each of the following methods of costing. 1. FIFO 2. Average Cost B. Using same information, compute for the cost of materials used and cost assigned to the inventory at the end of the month using the perpetual inventory method 1. Average costing 2. FIFO costing.

Answer 1

a) computation of cost of material used and cost assigned to ending inventory using periodic inventory system : in periodic inventory system, physical inventory should count at the end of period that is month/week/quarter/year cost of goods sold should calculate which is as under :

in this question at the end of september month physical invntory counted.

total purchased units = 6000 + 4700 +6500 + 4000 = 21200

totla units issued = 3800 + 2900 + 5000 - 1800 (return) + 4500 = 14400

ending inventory = 21200 - 14400 = 6800

1) fifo method :

		goods purchased	cost of goods sold	ending inventory
date	particular	# of units	cost per unit in P	# of units	cost per unit in P	cost of material used in P	# of units	cost per unit in P	ending balance in P
september 1	beginning balance						6000	60	360000
september 4	purchased	4700	70				6000	60	360000
							4700	70	329000
september 13	purchased	6500	75				6000	60	360000
							4700	70	329000
							6500	75	487500
september 24	purchased	4000	80				6000	60	360000
							4700	70	329000
							6500	75	487500
							4000	80	320000
september 30	total issued			6000	60	360000	2800	75	210000
				4700	70	329000	4000	80	320000
				3700	75	277500
total of cost of material used and cost assigned to ending inventory				14400		966500	6800		530000

total of cost of material used = 14400 units for P966500

cost assigned to ending inventory = 6800 units for P530000

2) average cost method :

		goods purchased	cost of goods sold	ending inventory
date	particular	# of units	cost per unit in P	# of units	cost per unit in P	cost of material used in P	# of units	cost per unit in P	ending balance in P
september 1	beginning balance						6000	60	360000
september 4	purchased	4700	70				10700	(360000+329000)/10700 = 64.39	689000
september 13	purchased	6500	75				17200	(360000+329000+487500)/17200 = 68.40	1176500
september 24	purchased	4000	80				21200	(360000+329000+487500+32000)/21200 = 70.59	1496500
september 30	total issued			14400	70.59	1016496	6800	70.59	480004
total of cost of material used and cost assigned to ending inventory				14400		1016496	6800		480004

total of cost of material used = 14400 units for P1016496

cost assigned to ending inventory = 6800 units for P480004

b) computation of cost of material used and cost assigned to ending inventory using perpetual inventory system : in perpetual invetory system, inventory balcances should calculated continuously and inventory records should be updated on each and every purchase and sale transactions which is as under :

2) fifo method

		goods purchased	cost of goods sold	ending inventory
date	particular	# of units	cost per unit in P	# of units	cost per unit in P	cost of material used in P	# of units	cost per unit in P	ending balance in P
september 1	beginning balance						6000	60	360000
september 4	purchased	4700	70				6000	60	360000
							4700	70	329000
september 7	issued			3800	60	228000	2200	60	132000
							4700	70	329000
september 10	issued			2200	60	132000	4000	70	280000
				700	70	49000
september 13	purchased	6500	75				4000	70	280000
							6500	75	487500
september 17	issued			4000	70	280000	5500	75	412500
				1000	75	75000
september 19	return to storeroom	1800	70				5500	75	412500
							1800	70	126000
september 24	purchased	4000	80				5500	75	412500
							1800	70	126000
							4000	80	320000
september 25	issued			4500	75	337500	1000	75	75000
							1800	70	126000
							4000	80	320000
total of cost of material used and cost assigned to ending inventory				16200		1101500	6800		521000

total of cost of material used = 16200 units for P1101500

cost assigned to ending inventory = 6800 units for P521000

1) average cost method :

		goods purchases	cost of goods sold	ending inventory
date	particular	# of units	cost per unit in P	# of units	cost per unit in P	cost of material used in P	# of units	cost per unit in P	ending balance in P
september 1	beginning balance						6000	60	360000
september 4	purchased	4700	70				10700	(360000 + 329000)/10700 = 64.39	689000
september 7	issued			3800	64.39	244682	6900	64.39	444318
september 10	issued			2900	64.39	186731	4000	64.39	257587
september 13	purchased	6500	75				10500	(257587 + 487500)/10500 = 70.96	745087
september 17	issued			5000	70.96	354800	5500	70.96	390287
september 19	return to storeroom	1800	70.96				7300	[390287 + (1800 x 70.96)]/7300 = 70.96	518015
september 24	purchased	4000	80				11300	[518015 + (4000 x80)]/11300 = 74.16	838015
september 25	issued			4500	74.16	333720	6800	74.16	504295
total of cost of material used and cost assigned to ending inventory				16200		1119934	6800		504295

total of cost of material used = 16200 units for P1119934

cost assigned to ending inventory = 6800 units for P504295

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