College Accounting Coach

Gives examples of Material losses

SiteOwner — Tue, 21 Feb 2012 06:07:57 +0000

Material losses include loss of quantity, weight or volume of materials.

Some examples of material losses which are incurred from the following:

Obsolescence re: change of specification results in certain type of materials become useless
Losses during handling like in pilferage, breakage, etc
Storage like fading, rusting, warping affect the materials or inventories
Loss during production due to inadequate or inefficient equipment, defective materials, accidents
Inherent causes re: evaporation of liquid materials
Inefficient stores issues when excess materials are not returned and left deteriorating or idling or get mixed with other unusable items and disposed off.

What do you think should the objectives of an efficient system of storekeeping

SiteOwner — Tue, 21 Feb 2012 06:05:32 +0000

Inventories whether they are materials, work-in-progress and finished goods constitutes a large part of cost for an organization. It is therefore important to understand the following major objectives of an efficient system of storekeeping which are as follows:-

That not too much inventories is held
That not too little inventories is held
That loss of materials/inventories are minimized; and
Inventories/materials are readily located and available.

Explain what is a Cost Statement?

SiteOwner — Mon, 20 Feb 2012 04:12:00 +0000

A cost statement or cost sheet or cost card shows the detailed cost of a cost centre or cost unit.Append below is a simple format of a cost statement:

Cost Statement or Cost sheet or Cost Card
	$
Direct material cost	5,000
Direct labor cost	4,000
Direct expenses	1,000
PRIME COST	10,000
Production overhead	2,500
PRODUCTION COST	12,500
Administration overhead	4,300
Selling and distribution overhead	6,500
TOTAL COST	23,300
Profit	3,400
Selling Price	26,700

Imprest Petty Cash With Question and Answer

SiteOwner — Fri, 27 Jan 2012 07:15:51 +0000

Earlier article on imprest petty cash system refers. Below is a very simple worked question and answer for the reader to enhance the understanding of imprest petty cash system.

Question:

ABC Enterprise has the following petty cash transaction for the month of January 2012:-

Jan	Description	$
1	Received from cashier	450.00
2	Cleaning	60.00
4	Travelling	35.00
9	Postage	25.00
12	Cleaning	40.00
20	Stationery	20.00
29	Travelling	45.00

(a) Determine the receipt of the amount necessary to restore the

imprest and carry down the balance for the following month

(b) Give the double entry journal for the various petty cash expenditure.

Suggested answer:

(a) The top up to restore the imprest cash float is the reimbursement of all

the actual expenditure namely :-

( Cleaning$60+Travelling$35+Postage$25+Cleaning$40+Stationery$20+

Travelling$45 = $225 )

(b) When a petty cash book with analysis columns for expenditure, the total

for each individual column are:

Cleaning $100 ($60 + $40)

Travelling $80 ($35+$45)

Postage $25

Stationery $20

The journal for the double entry for the aforesaid expenditures:-

Jan		Debit	Credit
31	Cleaning	100
	Travelling	80
	Postage	25
	Stationery	20
	Petty Cash		225
Being actual petty cash reimbursement for themonth of Jan 2012

Explain what are Non-current liabilities and current liabilities

SiteOwner — Fri, 27 Jan 2012 04:38:50 +0000

As we know liabilities are financial obligations of the business to external parties which consists of two major categories namely:

Non-current liabilities and
Current liabilities

NON- CURRENT LIABILITIES

CURRENT LIABILITIES

Amounts owing by the business that are NOT REPAID WITHIN ONE YEAR.

Examples are Long term loan, Mortgage on Property and Debenture

Amounts owing by the business that are to BE PAID WITHIN ONE YEAR
Examples are short term loan, bank overdraft, creditors or accounts payable.

Explain what are non-current assets and current assets owned by a business

SiteOwner — Fri, 27 Jan 2012 04:21:38 +0000

As we know assets are property owned by a business which consists of two major categories namely:

NON-current assets and
Current assets

NON- CURRENT ASSETS

CURRENT ASSETS

Assets bought not for resale but to be used in the operations of the business with useful lives of MORE THAN ONE YEAR.

Divided into three categories namely:-
(a) TANGIBLE non-current assets

(b) INTANGIBLE non-current assets and

(c)INVESTMENT

Tangible non-current assets:-

Machinery, land and building, office equipment, furniture and fittings, motor vehicles,etc

Intangible non-current assets:-

Trademark, goodwill, patterns, franchise,etc

Investment:-

Quoted and unquoted Investment, fixed deposits maturity more than 1 year,etc

Assets that are either cash or those than can be converted into cash within one year.
Assets which constantly change their form during an accounting period.
Examples are Inventory/stock, accounts receivables, cash at bank and cash in hand

What are the advantages and disadvantages of using the Periodic Review Inventory control system

SiteOwner — Sat, 14 Jan 2012 03:28:33 +0000

	ADVANTAGES		DISADVANTAGES
1	All stock items are reviewed periodically so that there is likely to be less obsolete stocks	1	In general larger stocks are required, as re-order quantities must take account of the period between reviews as well as lead times
2	Economies in placing orders may be gained by spreading the purchased office load more evenly	2	Re-order quantities are not at optimum level of a correctly calculated EOQ
3	Larger quantity discounts may be obtained when a range of stock items are ordered at the same time from a supplier	3	Less responsive to changes in consumption. If the rate of usage change shortly after a review, a stock-out may well occur before the next review
4	Because orders will always be in the same sequence, there may be production economies due to more efficient production planning being possible and lower set up costs.	4	Unless demands are reasonably consistent, it is difficult to set appropriate periods for review.

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What are the advantages and disadvantages of using the Re-order Level Inventory control system

SiteOwner — Sat, 14 Jan 2012 03:20:27 +0000

	ADVANTAGES		DISADVANTAGES
1	Lower stocks on average	1	Many items may reached re-order level at the same time, thus overloading the re-ordering systems
2	Items ordered in Economic quantities via the EOQ calculation	2	Items come up for re-ordering in a random fashion so that there is no set sequence
3	Somewhat more responsive to fluctuations in demand	3	In certain circumstances ( eg variable demand, ordering costs etc), the EOQ calculation may not be accurate.
4	Automatic generation of a replenishment order at the appropriate time by comparison of stock level against re-order level
5	Appropriate for widely differing types of inventory within the same firm

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In Inventory control, what the assumptions underlying the Economic Order Quantity(EOQ)

SiteOwner — Fri, 13 Jan 2012 05:29:45 +0000

Economic order quantity is defined as the ordering quantity which minimises the balance of cost between inventory holding costs and re-order costs.Underlying assumptions in an Economic Order Quantity model are:

That there is a known, constant stockholding cost
That there is a known, constant ordering cost,
That rates of demand are known,
That there is a known constant price per unit
That replenishment is made instantaneously, ie the whole batch is delivered at once.
That costs to be used in EOQ calculations must be marginal costs. Fixed costs are excluded.

Note that the rationale of EOQ ignores buffer stocks which are maintained to cater for variations in lead time and demand.

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In Inventory control, explain what are stock-out costs and give examples of stock-out costs

SiteOwner — Fri, 13 Jan 2012 05:23:35 +0000

Stock-out costs are costs associated with running out of stock

Examples of stock-out costs are:

Lost contribution through the lost sale caused by the stockout
Loss of future sales as customers go elsewhere
Loss of customer goodwill
Cost of production stoppages caused by stock-out of work-in-progress or raw materials
Labour frustration over stoppages
Extra costs associated with urgent, often small quantity, replenishment purchases.

[ see all other topics on inventory control or management]