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Material Cost Calculation Exercise

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Questions and Answers

What is a key purpose of establishing a system of budgets for inventories?

To discourage unnecessary investment in inventories (correct)

To have a detailed record of historical inventory data

To reduce the need for production schedules

To increase the complexity of inventory management

In the context of inventory management, what is a primary advantage of perpetual inventory records?

Encouraging unnecessary investment in inventories

Eliminating the need for production schedules

Providing historical financial data only

Facilitating continuous stock verification (correct)

What does the 'Two Bin System' mentioned in the text primarily aim to achieve?

Eliminate the use of material bins in the storage process

Reduce the need for continuous stock verification

Efficiently manage inventory levels by using two distinct bins (correct)

Encourage overstocking to minimize order frequency

Why is it important to establish a system of budgets for inventories?

To understand inventory requirements in advance Signup and view all the answers

What is the main purpose of the 'Bin Cards' in the perpetual inventory system?

To record withdrawals and additions of materials from bins Signup and view all the answers

How does the establishment of budgets for inventories help in inventory management?

By ensuring informed decision-making on inventory levels and investment Signup and view all the answers

What is a crucial step for the success of perpetual inventory?

Reconciling physical and book balances Signup and view all the answers

What is the main advantage of perpetual inventory according to the text?

Quick compilation of Profit and Loss Account Signup and view all the answers

Which activity is NOT part of maintaining successful perpetual inventory according to the text?

Ignoring any discrepancies found Signup and view all the answers

Why is reconciling physical and book balances important in perpetual inventory?

To ensure the accuracy of inventory records Signup and view all the answers

What differentiates perpetual inventory from periodic inventory according to the text?

Perpetual inventory allows for quick adjustments to stock balances Signup and view all the answers