This document discusses material cost control and issues control methods. It describes the purchasing and receiving departments which are responsible for procuring materials and checking incoming shipments. Common issues control methods like FIFO, LIFO, and weighted average are explained along with their advantages and disadvantages. The conclusion emphasizes the objectives of material control are to obtain the right materials at minimum total cost while avoiding overstocking or understocking.

1. MATERIAL COST CONTROL
:: ISSUES CONTROL
Submitted By
Anjana Mathews

2. MATERIAL AND CONTROL
• Material :: substance or substances such as idea or information that is
incorporated into a finished effort.
• Material cost :: cost of raw materials that goes into a product, which excludes any
indirect cost such as wages etc.
• Material control :: it is a systematic control over the purchasing storing and using
of material to minimizing the possible cost. Or it is as the level of material
maintenance so as to ensure uninterrupted production and minimizing the
investment of funds

3. PURCHASING AND RECEIVING
PURCHASING DEPT
• Purchase of all materials.
• Receive purchase requisition for materials, supplies and equipment.
• Prepare and place purchase orders.
• Arrange and verify systematic reports between the purchasing, receiving and
accounting department and their payments.

4. Contd……
RECEIVING DEPT
• Unload ,unpack and check incoming materials.
• Prepare receiving report.
• Notify the Purchasing Department for discrepancies discovered.
• If the materials require any quality control or inspection, they are sent for such
testing.

5. ISSUES CONTROL METHODS
• First In First Out (FIFO) Method.
• Last In First Out (LIFO) Method.
• Weighted Average Method.
• Other Methods

6. FIRST IN FIRST OUT METHOD
• First purchased or received is first issued.
• Value of closing stock represent current market price.
• It is an inventory costing method which assumes that the first items placed in
inventory are the first consumed.
• Inventory at the end of a year consists of the goods most recently placed in
inventory.
• Suitable when market price is falling.

7. ADVANTAGES
• It is simple to understand and easy to operate.
• Material cost charged to production represents actual cost.
• In the case of falling prices, the use of this method gives better results.
• Closing stock of material will be represented very closely at current market price.
• It is a logical method because materials are issued in order of purchases, so materials
received first are utilized first.
• This method is useful when transactions are not too many and prices of materials are fairly
steady.

8. DISADVANTAGES
• If the prices fluctuate frequently, this method may lead to clerical error.
• In case of fluctuations in prices of materials, comparison between one job and the
other job becomes difficult.
• For pricing rise, the issue price does not reflect the market price as materials are
issued from the earliest consignments.

9. LAST IN FIRST OUT METHOD
• Material received last are issued first.
• Materials are issued in the reverse order of purchases.
• LIFO is an inventory costing method which assumes that the last items placed in
inventory are first consumed during an accounting year.
• Inventory at the end of a year consists of the goods placed in inventory at the
beginning of the year.
• Suitable at time of rise in price.
• Closing stock valued at the lowest price.

10. ADVANTAGES
• The cost of materials issued will be nearer to the current market price.
• It enables us to match cost of production with current sales revenues.
• The use of the method during the period of rising prices does not reflect undue
high profit in the income statement.
• In the case of falling prices profit tends to rise due to lower material cost.
• In the period of inflation LIFO will tend to show the correct profit and thus avoid
paying undue taxes to some extend

11. DISADVANTAGES
• Calculation under LIFO system becomes complicated when frequent purchases are made at
highly fluctuating rates.
• Costs of different similar batches of production carried on at the same time may differ.
• This method of valuation of material is not acceptable to the income tax authorities.
• The stock in hand is valued at price which does not reflect current market price.
• Closing stock will be understated or overstated in the Balance Sheet.

12. WEIGHTED AVERAGE METHOD
• Inventory costing method in which material is issued at average cost is called
weighted average method.
• After every receipt of material, the average rate is calculated by total value and
quantity.
• Thus, the value of issues and stock is always within the range of highest and lowest
price paid.
• The issues and stock, at a given time, is valued at the same price.
• It avoids price fluctuations.

13. OTHER METHODS
• Simple Average
• Periodic Average
• Moving Average
• Specific Average
• Standard Price

14. CONCLUSION
• Thus by using the issues control in material cost control
• The basic objectives of material control is to obtain requisite quantity of material at right
price, right quantity, right quality and from right source.
• The detailed objectives of material control are as follows:
• To minimize total cost :: its purchase cost, its carrying cost and ordering cost.
• Regular supply of material
• No possibility of overstocking and under stocking
• Minimum Wastage
• Getting Material at Reasonable Prices:: reasonable low prices with required quality
• Availability of up-to-date Information