Cost Accounting - Material Control

Cost Accounting - Material Control

• 1.
  UNIT II –MATERIAL CONTROL Cost Accounting
• 2.
  INTENT  Meaning  Concept Objectives  Essentials of Material Control  Advantages of Material Control  Techniques of Material Control  Purchase Department  Objectives of PD  Qualifications and Duties of Purchase Manager  Levels of Stock  Economic Order Quantity  Store Keeping and Stock/Inventory Control
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  MEANING AND CONCEPTOF MATERIAL CONTROL  Meaning : Providing right quantity of material of the right quality at the right time and place at the minimum cost. Material control is an important function of the management. Regulation of an organization relating to procurement, storage and usage of materials in such a way as to maintain an even flow of production without excessive investment in material stock. Defined as, “A systematic control over purchasing, storing and consumption of materials, so as to maintain a regular and timely supply of materials, at the same time avoiding over- stocking.”
• 4.
  OBJECTIVES OF MC Objectives : To make available all types of materials and stores of right quality without any interruption To make purchase of materials of required quality to the standard fixed for finished product Purchase of materials at reasonably low cost or at maximum economy Investment in materials should not tie up huge amount of capital. Overstocking has its own limitations. To avoid abnormal wastage, leakage, etc. of the materials, store-keepers must be trained to minimize the loss of stores To avoid obsolescence of materials by adopting better method of issue of materials To provide the management with information of raw materials - cost, availability, etdc.. To ensure proper storage and utilization of materials
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  ESSENTIALS OF MC Should be co-operation and co-ordination among the departments dealing with materials – purchasing, receiving, testing, storage, production planning of materials  Purchasing of materials should be centralized under expert personnel  All items in the store should codified, classified and standardized  Proper forms to be used – issue, transfer, return of material etc.  Material storage to be planned to avoid losses from theft, deterioration, damage, evaporation, pilferage, etc.  Store control measures – ABC analysis, stock verification, etc.. Should be introduced  Stock at different level to be ensured – Avoid shortage, over stocking  Purchasing quantity to be fixed – reduce the ordering costs and carrying costs  Materials and supply should be properly stored  Receiving and inspection procedure to be chalked out  Regular reports of materials purchased, issued, obsolete, spoiled, defective, etc. to be submitted to the management
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  ADVANTAGES OF MC MaterialControl has to facilitate the following: - Elimination of waste in the use of materials - Reduction of risk of loss on account of theft, loss, fraud, etc. - Availability of the right quality of material in time - Avoidance of overstocking - Possibility of economic buying - Reviewing and revising of product design and savings in material - Quick and accurate availability of data and savings in material - Preventions of production delays
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  PURCHASE DEPARTMENT Starts withinitiation of purchase requisition and ends with receipt of materials by stores and payment of bills. Large firms, entrusted to an efficient purchasing department headed by Purchase Manager or Chief Buyer. Roles of Purchase manager : - Posses good knowledge of the requirements of the firm and know the quality and grade of a product - The source of supply of needed store-items - Posses administrative and organizational ability - Good knowledge of market trends - Conversant with the Mercantile Law, Contract Act, Sale of Goods Act, Insurance Act, etc - Man of high integrity and honesty - Facilitate in continuous flow of material from store to the production department - Quick in taking decisions - Maintaining good relations among the subordinates - Obtain maximum value of every rupee spent by him
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  OBJECTIVES - PD •Specialisation • Economy in Purchasing • Optimum Investment • Maintenance of cordial relationship • Developing alternative sources • Adoption of best methods • Source of Information
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  LEVELS OF STOCK Demandand supply method of stock control : a) Levels of Stock b) EOQ Levels of stock: • Minimum stock level • Maximum stock level • Danger level • Reorder level
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  EOQ Factors like costof purchasing and receiving, normal consumption, interest on capital, availability of storage accommodation, ordering and carrying costs a) Carrying cost b) Ordering cost EOQ = √ 2AB CS