Material Cost Control-B.V.Raghunandan

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Various aspects of material cost and the steps involved in material cost control including the documents used in the exercise

Various aspects of material cost and the steps involved in material cost control including the documents used in the exercise

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  • 1. Material Control
    Cost & Management Accounting
  • 2. Meaning & Importance
    Raw Materials, Chemicals, Components, loose tools, implements, maintenance items etc
    Most of the products are material intensive, where material forms a substantial part of total cost of production
  • 3. Objectives of Material Control
    Ensuring non-stop production
    Low investment in inventory
    Purchase only on proper Authorisation
    Purchase at minimum cost and at Economic Order Quantity
    Protection of Material & Proper Storage
    Lesser Idle Material
    Issue of Material on Proper Authorisation
    Fixing Up Responsibility for Material
    Ensuring Proper payment & Maintenance of Records
  • 4. Essentials of Material Control-I
    Inter-Departmental Co-ordination
    Budgeting & Scheduling
    Usage of Standard Printed Forms
    Classification of Material
    Internal Check
    Inter-departmental Communication
    Proper Control on Purchases & Issues
  • 5. Essentials of Material Control-II
    Proper Usage & Storage
    Maintenance of Proper Store Records
    Perpetual Inventory Control
    Fixing Up Levels of Stock
    Proper Pricing of issue of Material
    An Efficient Stores Control
    Recording Wastage & Shortage
  • 6. Purchase of Material: Elements of Material Control (Organisation of Purchase Department)
    Purchasing Department (Purchase)
    Receiving & Inspection Department
    Store-Keeping Department (Storing, Issue and Accounting for Material
    Production department (Receipt of Material)
    Costing Department (Perpetual Inventory)
  • 7. Types of Purchasing
    Centralised Purchasing
    Decentralised Purchasing
  • 8. Centralised Purchasing: Merits-I
    Quantity Buying
    Uniform Buying Policy
    Expert Staff for Buying
    Quick Implementation of Purchases
    Maintenance of Complete records in one Department
    Avoiding Duplication of purchasing Effort
  • 9. Merits of Centralised Purchasing- II
    Avoiding Excessive Stocking
    Recognising Purchase as a Major Function
    Effective utilisation of trade relations
    Economy in Recording
    Prompt Reporting of Scrap, Spoilage etc
    Reducing Material Cost
  • 10. Demerits of Centralised Buying
    Lesser Flexibility
    High Initial Cost of Setting up a Separate department
    Undue Delay in Supply of Material
    Difficulty of Maintaining Records of Different Departments
  • 11. Decentralised Buying: Merits
    Benefits of Local Purchase
    Lesser Transportation Cost
    Easy Local Sales through Contact with Local Suppliers
    Prompt Settlement of Complaints
    Personal Attention by Departmental Heads
    Reduces Costly Order Processing
    Technical Expertise
    Less Lead Time
  • 12. Purchase Procedure
    Receiving Purchase Requisition
    Selection of Sources of Supply
    Placing the Orders
    Receiving & Inspection of Materials
  • 13. 1.Receiving Purchase Requisition
    Received from
    - Store-Keeper for Regular Items
    - Production Departments for Special Material
    - Maintenance Department for material needed for repairs & maintenance
    - any Departmental Head like Marketing Manager, Finance Manager etc.
  • 14. Specimen of Purchase Requisition
    ABC castings Ltd.,
  • 15. 2.Selection of Sources of Supply: Steps Involved
    Inquiry for Tenders & Quotations
    Receipt of Quotations & Tenders
    Comparison of Tenders Received
    Selecting the Best Source
  • 16. 3.Placing the Order
    Purchase Order : 5 copies to-
    -supplier
    - retained by purchase department
    -department initiating purchase
    -Receiving Department
    - Finance Department
    b. Follow-Up
  • 17. Specimen of Purchase Order
  • 18. 4.Receiving & Inspection of Material
    Unloading the material
    Unpacking
    Checking the number of units, weight, measure, quality as per Purchase Order
    Reporting the Shortage and Breakage
    Preparing Material Inspection Note and Goods Received Note
    Sending MIN to Supplier & Stores Dept
    Sending GRN to Purchase Dept, Accounts Dept, and the Dept requiring the Material
  • 19. Material Inspection Note
  • 20. Goods Received Note
  • 21. Stores Control: Functions of Stores Department
    Preparing Purchase Requisitions
    Receiving Goods into Stores
    Proper Storage of Goods
    Avoiding Damage & Deterioration
    Classification and Coding of Material
    Issue of Material
    Maintaining Stock records
    Maintaining Different levels of Stock
    Stock Verification at Regular Intervals
  • 22. Types of Stores
    Centralised Stores: One centrally located Stores department Supplying for the requirements of all the Production and service departments
    Departmental Stores: each Department has a small stores department of its own
    Centralised Stores with Sub-stores
  • 23. Centralised Stores: Benefits
    Economy of Large Scale Buying
    Better Use of Staff
    Qualified Staff
    Better Use of Space
    Prompt Service
    Minimum Investment in Stock
    Better maintenance of Levels
  • 24. Inventory Control
    Setting Levels of Stock
    Determining Economic Order Quantity
    iii. ABC Analysis of Inventory Control
    iv. Perpetual Inventory System
    v. Establishment of Budgets
  • 25. i. Setting Levels of Stock: Factors Considered
    Rate of Consumption
    Lead Time
    Availability of Working Capital
    Economic Order Quantity
    Availability of Storage Space
    Cost of Carrying Stock
    Perishability of Material
    Seasonality in Availability of Material
    Loss by Deterioration
    Nature of Demand
  • 26. ii. Economic Order Quantity
    A quantity at which the sum of ordering cost and carrying cost is minimum i.e., less than the total cost of ordering and carrying of any other quantity
  • 27. Ordering Costs
    Cost of Placing an order
    Loading and Unloading of Goods
    Transportation Cost
    Insurance for Goods in Transit
    Cost of Receiving & Inspection
    Administrative Cost
  • 28. Costs of Carrying
    Warehouse Charges
    Insurance
    Lighting
    Heating
    Cold Storage & Refrigeration
    Pilferage
    Breakage
    Preservatives
    Supervision Costs
  • 29. iii. ABC Analysis
    Category A : 5-10% of Quantity and 70-85% of Value
    Category B: 20-30% 0f Quantity and 25-30% of Value
    Category C: 70 – 80% of Quantity and 5-10% of Value
  • 30. Merits of ABC Control
    Close & Strict Control on Expensive items
    Ensuring sufficient stock
    Leading to Efficient Inventory Management
    Saving the time of the Management
  • 31. Perpetual Inventory System
    Bin Card
    Stores Ledger
  • 32. Specimen of Bin Card
  • 33. Specimen of Stores Ledger
  • 34. Advantages of Perpetual Inventory System
    Early Discovery of Errors
    No Disruption in Production for Stock Taking
    Value of Stock on Any Day
    Excessive Stock is Avoided
    Prompt Inventory Information to the Mgt
    System of Internal Check
    Control over issue & Usage of Material
    Qualified Personnel to the Stores
  • 35. Physical Stock Verification
    Periodic Inventory System: Stock Verification once in a year by a team of people by stopping production-less time consuming and less expensive-but the system is defective
    Continuous Stock Verification: Benefits of Perpetual Inventory System
  • 36. THANK YOUEnd of Chapter 4