This document discusses material cost and control. It describes key terms like materials, inventory, and material control. The objectives of effective material control are to ensure availability of desired quality materials for production, purchase materials at favorable prices under good terms, and protect materials from theft or damage. Methods for evaluating stock prices include first in first out (FIFO), last in first out (LIFO), weighted average cost, and specific identification. FIFO values closing stock at most recent prices while LIFO values it at oldest prices. The advantages and disadvantages of each method are also outlined.

1. MATERIALS AND LABOUR COST
CONTROL
Vaishnavi Narendra
Assistant Professor
School of Management
Presidency University

2. MATERIAL COST AND CONTROL
 MATERIAL :- A tangible product or a substance where a
skill is required to turn it into a finished good, This term
might also refer to raw materials which is used for
production, subassemblies and fabricated parts.
 Inventory :- This refers to the raw materials, work in
progress goods and also all the finished goods that
considered to be a portion of business operations; the
assets which are ready for sale.
 Material control :- This aims at the purchasing of
materials and also effective storing and also uninterrupted
production and effective consumption.

3. OBJECTIVES OF AN EFFECTIVE MATERIAL
CONTROL
 Materials of desired quality would be accessible
when there is a need for an effective and an
uninterrupted production.
 Purchase of materials should be made under most
favorable prices that too in best possible terms.
 The materials must be protected against, theft,
fire etc.
 Materials are to purchased only when there is a
need for any economic activity.

4. PRICING ISSUES OF MATERIAL
 The pricing issues of materials might be fluctuating; change
from time to time.
 There actual costs is taken on different values.
 So the material pricing system should be the simplest and most
effective one.
METHODS INVOVLED IN EVALUATION OF STOCK
FIRST IN FIRST OUT :-FIFO
LAST IN FIRST OUT :- LIFO
WEIGHTED AVERAGE COST :- WAVCO
SPECIFIC IDENTIFICATION /UNIT COST METHOD

5. FIRST IN FIRST OUT
 This is a particular method where the first stock
which is received is sold first.
 The Cost of materials is based on the oldest
prices.
 The closing stock is valued at the most recent
prices

6. FIFO
*
BEGINING
INVENTORY
+
NET
PURCHASES
*
GOODS
AVAILABLE
FOR SALE
*
ENDING
INVENTORY
+
COST OF
GOODS SOLD

7. ADVANTAGES AND DISADVANTAGES OF
FIFO
 ADVANTAGES OF FIFO METHOD
 FIFO method saves money and also time in calculating the exact cost of the inventory
being sold because the cost is always having a relevance on the former cash flows of
the purchases which are used first.
 The concept is comparatively simple and easy to understand , any layman can
understand with a little knowledge.
 This method is the most reliable practical approach, all the hidden costs are also taken
into account apparently FIFO rectifies the manner.
 It is widely used method and the approach of valuation will increase the quotient of
reliability and consistency
 The policy under FIFO claims no vagueness with respect to values determined under
cost of sales, figures profit/loss statement. So there is no manipulation being
witnessed in the financial statements.
 Cost of sales = Opening stock+ Purchases – Closing stock

8.  DISADVANTAGES OF FIFO METHOD
 One of the biggest disadvantage is the valuation of inventory stock at the
times of inflation; results in higher profit zone subsequently there is a higher
liaison of “tax liabilities”. This can result in higher cash flows and additional
charges on tax.
 FIFO method is not suitable when there is a circumstance called “higher
inflation” , because there is no reliable pattern of inflation of prices which
would inflate drastically.
 This method is not suitable whenever there is a fluctuation of prices because
this results in misstated profits and sometimes the pricing value might be
clumsy or cumbersome.

9. LAST IN FIRST OUT (LIFO)
 This method assumes that last stock to be
received and it had to be sold first.
 The cost of materials is based on the recent
prices.
 The closing stock is valued at the oldest prices.

10. LIFO
• BEGINNING
INVENTORY
• +
NEW
PURCHASES
• Goods
available
for sale
LIFO
• ENDING
INVENTORY
• +
COSTOFGOODS
SOLD

11.  ADVANTAGES OF LIFO
 LIFO method matches the most recent costs against current revenues
 It helps in reducing the inventory profits by matching the most recent
costs against the revenues, There is a reduction of understatement of
cost of goods sold and also an overstatement of profit.
 There is a tax benefit and improvisation of cash flows
 This method is very much reliable during “inflation”, since the current
purchases at higher prices are matched against the revenues .
 This method can be adapted even when there is a fluctuation of
prices, so the net income of a company that uses LIFO is very much
unaffected by the decline of prices in future.
ADVANTAGES AND DISADVANTAGES OF
LIFO METHOD

12.  DISADVANATGES OF LIFO METHOD
 Reduced earnings in inflationary times, This method would reduce the
reported earnings at the time of inflation, therefore many companies would
fear that this would have a negative impact on their profits and apparently
they would also loose many investors.
 There is an understatement of inventory, because it is based on the oldest
costs , so the working capital position looks even more worse than the actual
reality.
 One of the major disadvantage in LIFO system is the manipulation of data, the
reported earnings can be manipulated by changing the purchase pattern in
the end of the year.