In this article, we will learn the “top 40 questions and answers-materials“.Materials are the essential components of the manufacturing process. Materials play a crucial role in cost accounting.
After reading this article, you will have a basic understanding of materials, which will definitely help in the development of your accounting skills.
So let’s get started.
Questions and Answers-Materials
Question-01: What is the raw material?
Answer: Raw materials are the basic ingredients of product manufacturing. Manufacturing of products is not possible without raw materials.
Question-02: How many types of materials?
Answer: There are two types of materials
- Direct Material and
- Indirect Material
Question-03: What is direct material and what is the example of direct material?
Answer: The raw material that is directly involved in the production and the cost of the raw material that can be directly distributed over the product is called direct material.
For example, Limestone for cement manufacturing, wood for furniture production, Fabrics for making shirts or pants, etc.
Question-04: What is indirect material and what is the example of indirect material?
Answer: Materials that are part of production but cannot be distributed directly to each unit produced are called indirect raw materials.
For example, stationaries used in factories, Glue, nails in making furniture, etc.
Question-05: What is the cost control of materials?
Answer: The term “cost control of materials” refers to the process of lowering the cost of materials by procuring them as required and properly managing them.
Question-06: Who does cost control function?
Answer: Cost accountant performs the cost control function.
Question-07: What are the steps of material purchase?
Answer: The steps of materials purchase are as follows:
- Determining annual demand
- Preparation of purchase demand form
- Ordering
- Receipt of materials
- Materials testing
- Adjustment of materials
- Create vouchers and pay
Question-08: What is the five ‘R’s of materials management?
Answer: the five ‘R’s of materials management is as follows:
- Right Time
- Right Quality
- Right Quantity
- Right Price
- Right Source
Question-09: How many principles of material management?
Answer: There are 5 (five) principles of material management.
Question-10: What is a material requisition note?
Answer: The material requisition note is a letter from various department officers demanding that the purchasing manager buy the supplies and other materials needed by their department.
Question-11: How many copies of the material requisition notes are prepared?
Answer: Three (3) copies of the material requisition notes are prepared. The original copy is provided to the purchasing department, the second copy to the production department, and the third copy to the storekeeper.
Question-12: What is purchasing order note?
Answer: A Purchase Order Note is a letter from the Procurement Department to a material supplier, instructing them to purchase material as required.
Question-13: What do you mean by material testing?
Answer: Material testing is the process of verifying the consistency, weight, length, quantity, and other characteristics of the material collected in accordance with the order.
Question-14: What is material control?
Answer: Material control is a system for ensuring that resources are available at a low cost.
Question-15: What are the materials control strategies?
Answer: The materials control strategies are as follows:
ABC Planning
VED Analysis
SDE Analysis
HML Analysis
Question-16: What are the full form of VED, SDE, HML, FSN, EOW, and ITO?
Answer: The full form of VED, SDE, HML, FSN, EOQ, and ITO are as follows:
VED= Vital Essential Desire analysis
SDE= Scarce, Difficult and Easily available analysis
HML=Highest Medium and Low-cost item analysis
FSN=Fast, Slow and Non Moving analysis
EOQ=Economic Order Quantity
ITO= Inventory Turn Over
Question-17: Who is invented ABC analysis principles?
Answer: Wilfedro Preto invented ABC analysis principles in the year 1896.
Question-18: What are some fields of ABC analysis?
Answer: Some field of ABC analysis are as follows:
- Organizations where stocks of different prices are kept
- Organizations that want to keep track of stocks in a scientific way
Question-19: What is EOQ?
Answer: The Economic Order Quantity (EOQ) is the buying order quantity that provides the best value for money when purchasing materials.
Question-20: What does the ordering cost? And what is the example of ordering cost?
Answer: The cost of the purchasing department’s salary, wages, transportation, and stationary for purchasing products as required is referred to as the ordering cost.
For example, Salary and wages of Purchasing Department, Depreciation of purchase department equipment, etc.
Question-21: What is carrying or storing cost? And what is the example of carrying or storing cost?
Answer: Carrying cost refers to the costs incurred from the time material is purchased before it is used or sold. For example, Warehouse rent, Salary, and wages of the warehouse, etc.
Question-22: How many elements are considered to EOQ and what are they?
Answer: Two (2) elements are considered to EOQ and they are as follows:
- Ordering Cost and
- Carrying Cost
Question-23: Who and in which year invented EOQ?
Answer: W. Haris invented the EOQ model in the year 1975
Question-23: What is the calculation system of EOQ?
Answer: There is three (3) system of calculation of EOQ which are as follows:
- Formula method
- Tabular method
- Graphic method
Question-24: What is the maximum stock level? And what is the formula for calculating maximum stock level?
Answer: The maximum level refers to the maximum amount of a particular material that should be stored in the store at any one moment.
Maximum stock level= Re-order level + Re-ordering Quantity-(Minimum Consumption*Minimum Reorder Period)
Question-25: Which factors should be considered at the time of fixation of the maximum stock level?
Answer: The followings factors should be considered at the time of fixation of the maximum stock level:
- Nature of the material.
- Rae of the consumption of material.
- The lead time.
- The maximum requirement of the material at any emergency time.
- Storage space available, etc.
Question-26: What is the minimum stock level?
Answer: The minimum stock level is the smallest quantitative balance of material that must be kept on hand at all times to ensure that the assembly line does not come to a halt due to a lack of materials.
Question-27: Which factors should be considered at the time of fixation of the minimum stock level?
Answer: The factors that should be considered at the time of fixation of the maximum stock level is as follows:
- Nature of the material
- The lead time or re-order period
- Availability of substitutes
- Stockout cost, etc.
Question-28: What is the danger level? What is the formula for calculating danger level?
Answer: The danger level is the point at which immediate buying action is required to replace stock and avoid stock out and production halt.
Danger Level= Normal Usage *Maximum re-order period under emergent conditions
Question-29: What is the formula of average stock level?
Answer: Average Stock Level = {(Maximum Stock level + Minimum Stock Level)/2}
Question-30: What is Re-order Level? And what is the formula for calculating Re-order level?
Answer: The re-order level is the point at which, if the material in stock is depleted, a new order for more material must be placed. This position is about halfway between the maximum and minimum levels.
Re-order Level= Maximum re-order period* Maximum usage
Question-31: How many methods are used in the valuation of material? And what are they?
Answer: Two methods are used in the valuation of material. Which are as follows:
- Perpetual Inventory System
- Periodical Inventory System
Question-32: What is a perpetual inventory system?
Answer: Perpetual inventory is a method of keeping track of store transactions in which entries are created for each receipt and issue, as well as the balance.
Question-33: What is a Periodical inventory system?
Answer: The method of calculating stocks by actually counting the goods at the end of the accounting period is called the Periodical inventory system.
Question-34: What is the stores’ department?
Answer: The Stores department is the department charged with the function of material control.
Question-35: What is Bin Card?
Answer: The storekeeper’s principal record for stock register purposes is the bin card, on which each bin is suitably numbered.
Question-36: What is a store ledger?
Answer: The store ledger is the primary accounting record that keeps track of the quantities and amounts of various materials on loose-leaf cards that may be easily removed and reinserted into the ledger.
Question-37: What is inventory turnover? And how to calculate it?
Answer: Inventory turnover usually expressed as a ratio, indicates the number of times the inventory is turned over i.e. bought and consumed during a particular period.
Inventory turnover ratio= Cost of materials consumed during a period/Average inventory held during the period
Question-38: What is Just-in-time (JIT) Purchasing?
Answer: Just-in-time (JIT) is a manufacturing strategy that aims to increase a company’s return on investment by reducing inventory to a minimum, maintaining close relationships with suppliers, and scheduling frequent deliveries to customers.
Question-39: What are the advantages of Just-in-time (JIT)?
Answer: The advantages of Just-in-time (JIT) are as follows:
- Throughout the production cycle, the stock is delivered at regular intervals.
- The optimal amount of inventory is on hand at all times because supply is linked with manufacturing demand.
- Cutting setup time allows the business to save time on materials handling and stock investments.
Question-40: What are the common methods of costing material issued and inventories?
Answer: The common methods of costing material issued and inventories are as follows:
- First-in-First-out (FIFO) method
- Last-in-First-out (LIFO) method
- Weighted Average Cost
- Simple Average Cost
I believe you learned a lot about materials by the end of the article. Please study these “top 40 questions and answers-Materials” on a regular basis; it will undoubtedly improve your accounting skills.
You may also read:
Top Questions and Answers:
- Introduction to Cost Accounting
- Cost Terms, Concepts, and Classification
- Job Order Costing
- Process Costing
- Activity-based costing
- Standard Costing and Variance Analysis
- Operating Costing
Interesting questions, Thank you.