Cost & Management Accounting

1. Cost & Management Accounting Material Control

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