Material Control: Ashim Bhatta (CA, MBS, ISA)
Material Control: Ashim Bhatta (CA, MBS, ISA)
ABC analysis
Economic order quantity
Stock levels, minimum level, and maximum level, reorder level, reorder
quantity
Inventory turnover ratio and review of slow moving and non moving items
Proper purchase procedure
Proper storage procedure
Proper issue procedure
Two bin system
Use of perpetual inventory system and continuous stock verification
Establishment of a system of budgets
Difference Between:
Difference Between:
VALUATION OF MATERIAL RECEIPTS
Note:
(i) Cash discount is treated as interest and finance charges hence, it is not considered
for valuation of material.
(ii) Input credit is available for VAT paid; hence it will not be added to purchase cost.
INVENTORY CONTROL
OR,
= safety stock + EOQ
STOCK LEVELS
Danger level: It is the level at which normal issues of the Normal are
stopped and emergency issues are only made.
2. If the actual input - output ratio is above the standard input output ratio,
the performance of production department is ….
b. Favourable b. Unfavourable c. at standard level
Ordering cost: It is the cost for placing the orders for purchase of
materials and includes:
Cost of staff posted in the purchasing department, inspection section and
payment department
Cost of stationary, postage and telephone charges.
Tender invitation
Inspection cost
Transportation costs in relation to stock
Economic Order Quantity
Carrying cost: It is the cost of holding the materials in the store and
includes:
Cost of storage space which could space which could have been utilized for
some other purpose
Cost of bins and racks that have been provided for the storage of materials
Cost of maintaining the materials to avoid deterioration
Amount of interest payable on the money locked up in the material
Cost of spoilage in stores and handling
Cost of obsolescence on account of some materials becoming obsolete after
some time of storage either due to change in the process or product.
Insurance cost
Clerical cost.
Economic Order Quantity
Economic Order Quantity
Economic Order Quantity
Economic Order Quantity
Economic Order Quantity
Economic Order Quantity
Economic Order Quantity
Economic Order Quantity
Economic Order Quantity
Inventory Stock- Out
Stock out said to be occurred when an inventory item could not be supplied
due to insufficient stock in the store. The stock- out situation costs to the
entity not only in financial terms but in non-financial terms also.
While deciding on the level of inventory, a trade-off between the stock out
cost and carrying cost is made so that overall inventory cost can be
minimized
Illustration - Inventory Stock- Out
Illustration - Inventory Stock- Out
Just in Time (JIT) Inventory Management
d) Defectives: Goods which can be rectified and turned out as good units
by the application of additional labour or other services.
Accounting Treatment of Material Losses
Value is significant and not identifiable with particular job: Net sales
proceeds of scrap is deducted from material cost or factory overhead.
Defectives
Are identifiable with particular job or process: rectification cost are
charged to that job or process
Are not identifiable to particular job or process: charged to
production overhead
Are due to the fault of particular department: charged to that
department
Are due to the wrong instruction of the customer: charged to that
particular job and recovered from customer.
Illustration - Treatment of spoilage
Illustration – Material losses
Illustration – Material losses
Frequently asked in Exams
Techniques of inventory control
Direct and indirect Material
Objective and Advantage of Material control
Store Records used in Material
Store ledger and Bin card
Different methods of pricing material issues
Material Requirement Planning (MRP)
Loss due to Obsolete stores
Waste, scrap, spoilage and defectives
Bill of material & Material requisition note
Just in time inventory system
Continuous stock taking and Perpetual inventory