Material Cost Control-B.V.Raghunandan
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Transcript of Material Cost Control-B.V.Raghunandan
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Material Control
COST & MANAGEMENT ACCOUNTING
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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
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Objectives of Material ControlEnsuring non-stop productionLow investment in inventoryPurchase only on proper AuthorisationPurchase at minimum cost and at Economic
Order QuantityProtection of Material & Proper StorageLesser Idle MaterialIssue of Material on Proper AuthorisationFixing Up Responsibility for MaterialEnsuring Proper payment & Maintenance
of Records
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Essentials of Material Control-IInter-Departmental Co-ordinationBudgeting & SchedulingUsage of Standard Printed FormsClassification of MaterialInternal CheckInter-departmental CommunicationProper Control on Purchases & Issues
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Essentials of Material Control-II
Proper Usage & StorageMaintenance of Proper Store RecordsPerpetual Inventory ControlFixing Up Levels of StockProper Pricing of issue of MaterialAn Efficient Stores ControlRecording Wastage & Shortage
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Purchase of Material: Elements of Material Control (Organisation of Purchase Department)
Purchasing Department (Purchase)Receiving & Inspection DepartmentStore-Keeping Department (Storing, Issue
and Accounting for MaterialProduction department (Receipt of
Material)Costing Department (Perpetual Inventory)
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Types of Purchasing
Centralised Purchasing
Decentralised Purchasing
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Centralised Purchasing: Merits-I
Quantity BuyingUniform Buying PolicyExpert Staff for BuyingQuick Implementation of PurchasesMaintenance of Complete records in
one DepartmentAvoiding Duplication of purchasing
Effort
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Merits of Centralised Purchasing- II
Avoiding Excessive StockingRecognising Purchase as a Major FunctionEffective utilisation of trade relationsEconomy in RecordingPrompt Reporting of Scrap, Spoilage etcReducing Material Cost
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Demerits of Centralised Buying
Lesser FlexibilityHigh Initial Cost of Setting up a Separate department
Undue Delay in Supply of Material
Difficulty of Maintaining Records of Different Departments
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Decentralised Buying: MeritsBenefits of Local PurchaseLesser Transportation CostEasy Local Sales through Contact with
Local SuppliersPrompt Settlement of ComplaintsPersonal Attention by Departmental HeadsReduces Costly Order ProcessingTechnical ExpertiseLess Lead Time
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Purchase Procedure
1. Receiving Purchase Requisition
2. Selection of Sources of Supply
3. Placing the Orders
4. Receiving & Inspection of Materials
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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.
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Specimen of Purchase Requisition
ABC castings Ltd., ABG Castings Limited MG Road, Mangalore-3No.Date Required: Purchase Order No.
Item No. Code No. Description Qty Remarks
Requisitioned by: Approved by:
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2.Selection of Sources of Supply: Steps Involved
a. Inquiry for Tenders & Quotationsb. Receipt of Quotations & Tendersc. Comparison of Tenders Receivedd. Selecting the Best Source
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3.Placing the Order
a. Purchase Order : 5 copies to- -supplier - retained by purchase department -department initiating purchase -Receiving Department - Finance Departmentb. Follow-Up
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Specimen of Purchase Order
ABG Casting Limited MG Road, Mangalore-3 PURCHASE ORDERNo. Date:Quotation No. Purchase Requisition No.
To Thermax Ltd., Bombay
Dear Sir, Please supply the following as per terms and conditions contained inyour quotation number as mentioned above.
Sl.No.
Qty Description Price/Unit
Total Remarks
Purchase Manager
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4.Receiving & Inspection of Material
Unloading the materialUnpackingChecking the number of units, weight,
measure, quality as per Purchase OrderReporting the Shortage and BreakagePreparing Material Inspection Note and
Goods Received NoteSending MIN to Supplier & Stores DeptSending GRN to Purchase Dept, Accounts
Dept, and the Dept requiring the Material
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Material Inspection Note ABG Casting Limited,
M.G. Road,Mangalore-3
Material Inspection NotePurchase Order No. Date:Inspection Note No. Date:
Sl.No
Description
Qty Quantity Remarks
Inspected
Accepted
Rejected
Inspected by:
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Goods Received NoteABG Castings Limited,
MG Road, Mangalore-3
Goods Received Note No: Purchase Order NoDate: Date:
Received from M/s Thermax Limited, Bombay under their Invoice No. TH 567230 dt……. The following:
Sl.No
Description
Stock Code No.
Quantity Rate Amount
Condition of Goods:……………………. Posted in Stores Ledger:……………..Posted in Bin Card:……………………… Remarks…………………………………...
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Stores Control: Functions of Stores Department
Preparing Purchase RequisitionsReceiving Goods into StoresProper Storage of GoodsAvoiding Damage & DeteriorationClassification and Coding of MaterialIssue of MaterialMaintaining Stock recordsMaintaining Different levels of StockStock Verification at Regular Intervals
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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
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Centralised Stores: BenefitsEconomy of Large Scale BuyingBetter Use of StaffQualified StaffBetter Use of SpacePrompt ServiceMinimum Investment in StockBetter maintenance of Levels
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Inventory Control
i. Setting Levels of Stock
ii. Determining Economic Order Quantity
iii. ABC Analysis of Inventory Control
iv. Perpetual Inventory System
v. Establishment of Budgets
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i. Setting Levels of Stock: Factors Considered
1. Rate of Consumption2. Lead Time3. Availability of Working Capital4. Economic Order Quantity5. Availability of Storage Space6. Cost of Carrying Stock7. Perishability of Material8. Seasonality in Availability of Material9. Loss by Deterioration10. Nature of Demand
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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
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Ordering CostsCost of Placing an orderLoading and Unloading of GoodsTransportation CostInsurance for Goods in TransitCost of Receiving & InspectionAdministrative Cost
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Costs of CarryingWarehouse ChargesInsurance LightingHeatingCold Storage & RefrigerationPilferageBreakagePreservativesSupervision Costs
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iii. ABC AnalysisCategory 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
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Merits of ABC ControlClose & Strict Control on Expensive items
Ensuring sufficient stock
Leading to Efficient Inventory Management
Saving the time of the Management
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Perpetual Inventory System
Bin Card
Stores Ledger
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Specimen of Bin Card Bin Card Description Bin No. Stores Folio No. Code No. Location Code. Unit: Maximum Level : Minimum Level: Reordering Level: Reordering Quantity:
DateReceipts Issues Balance
RemarksGR No. QTY MR No.
Qty Quantity
Entered by: Authorised by:
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Specimen of Stores Ledger
STORES LEDGER Description… Code No….. Maximum Level…Location Code No…….. Unit…. Minimum Level……..Re-order Quantity….. Re-order Level….
Date
Receipts Issues Balance
GR No Qty Rate Amt MR No
Qty Rate
Amt
Qty Rate
Amt
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Advantages of Perpetual Inventory System
1. Early Discovery of Errors2. No Disruption in Production for Stock
Taking3. Value of Stock on Any Day4. Excessive Stock is Avoided5. Prompt Inventory Information to the Mgt6. System of Internal Check7. Control over issue & Usage of Material8. Qualified Personnel to the Stores
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Physical Stock VerificationPeriodic 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
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THANK YOUEnd of Chapter 4