THE TAMIL NADU NATIONAL LAW SCHOOL,

TIRUCHIRAPPALLI.

ACADEMIC SESSION
2015-2016
COST ACCOUNTANTING PROJECT
ON
STORE

KEEPING AND STOCK CONTROL OR INVENTORY

CONTROL
SUBMITTED TO: Proff. T.S AGILLAH
SUBMITTED BY : SHUBHANG GOMASTA
B COM LL.B (HONS.)
ROLL NO. BC0140056

DECLARATION

I, SHUBHANG GOMASTA hereby declare that the project work entitled A STUDY ON
STORE KEEPING AND STOCK CONTROL OR INVENTORY CONTROL , submitted to
Tamil Nadu National Law School, Tiruchchirappalli, is the record of a bona fide work done by
me under the supervision and guidance of Proff. T.S AGILLAH, Faculty of Finance System and
Markets, the Tamil Nadu National Law School, Tiruchchirappalli.
All information furnished in the project is true to the best of my knowledge and belief devoid of
plagiarism. If under the circumstances plagiarism is truly established, then the Law School may
be pleased to proceed with any action against me according to the Universitys rules and
regulations.

SHUBHANG
GOMASTA
B.Com .LL.B(Hons.).
18- 03 -2016

CERTIFICATE

This is to certify that the Research Project entitled: A STUDY ON STORE KEEPING AND
STOCK CONTROL OR INVENTORY CONTROL, submitted to the Tamil Nadu National Law
School; Tiruchchirappalli, in fulfillment of the requirements for internal component for B.COM;
LL.B (HONS.), FOURTH Semester is an original and bona fide research work carried out by
SHUBHANG GOMASTA, under my supervision and guidance. No part of this study has been
submitted to any University for the award of any Degree or Diploma whatsoever.

Date: 06-10-2015
Place: Tiruchchirappalli.

ACKNOWLEDGEMENTS

At the outset, the researcher take this opportunity to thank my T.S AGILLAH from the bottom of
my heart who has been of immense help during moments of anxiety and torpidity while the
project was taking its crucial shape.
Secondly, the researcher convey my deepest regards to the administrative staff of TNNLS who
held the project in high esteem by providing reliable information in the form of library
infrastructure and database connections in times of need.
Thirdly, the contribution made by my parents and friends by foregoing their precious time is
unforgettable and highly solicited. Their valuable advice and timely supervision paved the way
for the successful completion of this project. Hence as a student, the researcher am extremely
grateful and forever deeply indebted to him.
Finally, the researcher thanks the Almighty who gave me the courage and stamina to confront all
hurdles during the making of this project.

Words arent sufficient to acknowledge the

tremendous contributions of various people involved in this project--- as the researcher know
Words are Poor Comforters. the researcher once again wholeheartedly and earnestly thank all
the people who were involved directly or indirectly during this project making which helped me
to come out with flying colors.

TABLE OF CONTENTS:
METHEDOLOGY

06

OBJECTIVES

..

07

INTRODUCTION

08

FUNCTIONS OF MONEY MARKET

..

09

LONDON MONEY MARKET

..

11

CONSTITUENTS

11
CHAGES IN THE STRUCTURE OF THE LONDON MONEY MARKET
.
14

NEW YORK MONEY MARKET

18

.
.
.

18
18
19

CONCLUSION

21

BIBLIOGRAPHY

22

ORGANISATION
INSTITUTIONS
INDIVIDUAL MARKETS

OBJECTIVES

The objectives of making this project i.e. STORE KEEPING AND STORE CONTROL OR
INVENTORY CONTROL is to understand about the store keeping and its components. It also
helps to analysis the work of a store keeper and the different forms of stores available in the
present system i.e : decentralized and centralized stores . During the conclusion of this paper the
researcher will give an insight on the Receipt and issue of Materials .

METHODOLOGY

The researcher has worked on this project STORE KEEPINGS AND STOCK CONTROL OR
INVENTORY CONTROL . The researcher has used the secondary resources, which the
researcher has taken from various media-journals, online resources etc. and only secondary data
has been used while making this assignment.

INTRODUCTION
Meaning of Store Keeping

According to Alford and Beatty storekeeping is that aspect of material control concerned with
the physical storage of goods. In other words, storekeeping relates to art of preserving raw
materials, work-in-progress and finished goods in the stores
Store keeping is a specialized and important function of materials control that is especially
concerned with the physical storage of goods. The storekeeper is responsible for safeguarding
and keeping the materials and suppliers in proper place unit required in production. It is service
function and the store keeping is the in-charge of store keeping. He is the warden of the service
and the store and maintains a record of all movements of materials. Storekeeper is in fact a
connecting like between planning and the production department. Purchase control must be
effective stores control to avoid losses from damage, deterioration and carelessness. A storehouse
is a building provided for preserving materials, stores and finished goods. The in-charge of store
is called storekeeper or stores manager. The organisation of the stores department depends upon
the size and layout of the factory, nature of the materials stored and frequency of purchases and
issue of materials.
Objective of store keeping
Store keeping involves handling and recording of materials. Following are the main objective of
store keeping.
1. To ensure uninterrupted supply of materials and stores without delay to various production and
service departments of the organisation.
2. To prevent overstocking and understocking of materials,
3. To protect materials from pilferage, theft fire and other risks.

4. To minimise the storage costs.

5. To ensure proper and continuous control over materials.
6. To ensure most effective utilisation of available storage space and workers engaged in the
process of storekeeping.
Functions of Storekeeping
In the light of above objects, the functions performed by the stores department are outlined
below:
1. Issuing purchase requisitions to Purchase Department as and when necessity for materials in
stores arises.
2. Receiving purchased materials from the purchase department and to confirm their quality and
quantity with the purchase order.
3. Storing and preserving materials at proper and convenient places so that items could be easily
located.
4. Storing the materials in such a manner so as to minimise the occurrence of risks and to prevent
losses due to defective storage handling.
5. Issuing materials to various departments against material requisition slips duly authorized by
the respective departmental heads.
6. Undertaking a proper system of inventory control, taking up physical inventory of all stores at
periodical intervals and also to maintain proper records of inventory.
7. Providing full information about the availability of materials and goods etc., whenever so
necessary by maintaining proper stores records with the help of bin cards and stores ledger etc.

Working of the stores:

There are four sections in the process of storekeeping viz.
(a) Receiving section,
(b) Storage section,
(c) Accounting section, and
(d) Issue section.
These are explained as under:
(a) Receiving Section:
There are four kinds of inventories received by stores viz., (i) raw materials, (ii) stores and
supplies, (iii) tools and equipments, (iv) work-in- progress or semi-finished goods.
Following procedure is followed in receiving these inventories:
(i) Receiving these incoming materials in stores.
(ii) Checking and inspection of these incoming materials and stores etc.
(iii) Recording the incoming materials in goods received book.
(iv) Preparing and forwarding goods inwards note to purchasing section.
(v) Informing the purchase department about damaged and defective goods and surplus or deficit
supplies etc. along with rejection forms and notes.
(vi) Returning damaged or defective goods to the suppliers in accordance with the instructions of
the purchase department.

(vii) Forwarding the materials to respective stores and locations where these are to be stored or
preserved.

(b) Storage Section:

The store room should be located at a convenient and appropriate place. It should have ample
facilities to store the materials properly viz. bins, racks and shelves etc. There can be a single
store room in case of a small organisation, but a large scale concern can have different or
multiple stock rooms in addition to general or main store.
The separate stockrooms may be used for different classes of inventories. The material should be
stored in such a manner as to protect it against the risks of damage, destruction and any kind of
loss. Each article should have identifying marks viz., stamping, embossing, colour, coding and
painting etc. These risks are very useful in locating or identifying an article in the stores.
(c) Accounting Section:
This section is concerned with keeping proper records with regard to receipt and issue of
materials. The primary task of this section is to undertake the process of inventory control.
(d) Issue Section:
The materials should be issued to respective departments on receiving duly authorised requisition
slips. An entry should be made immediately on the bin card attached with the bin from where the
material has been issued.
Bin cards contain valuable information with regard to receipt and issue of materials, which is
greatly helpful in exercising a system of inventory control. These cards are further helpful in
determining various levels of materials viz., maximum, minimum, and re-ordering level.

Responsibility and Duties of a store keeper

Store keeper is the important person for the store. He is the in charge of the store department and
also responsible for store control. He must be a skilled person and takes care of the store. He
keeps a watch full eye on the movement of the materials with a view to control the materials in
the store. He is known as chief-store keeper or store superintendent. A store keeper should have
technical knowledge and experience in the maintenance of the store. He should have organizing
ability and undoubted integrity.
Duties and responsibility: The primary duties of the store keeper is various and varied
according to the organisation structure. A store keeper is being the head of a store dept. He is
entrusted the following duties & responsibility.
Receiving material: The primary duty of the store keeper is to receive the material from the
supplier. At the time of receipt of material, he has to see that the materials have been sent by the
supplier on the basis of purchase order.
Arranging materials: The materials received by the store keeper must be arranged in a proper
manner. Bins should be allotted to each and every item.
Preservation of the material: After the receipt of material they are to be preserved properly. It
is the duty of the store-keeper to keep the material in store on safe custody. Unless the quality
may deteriorate loss of material may be possible.
Recording: It is the duty of the store keeper to record the receipt and issue of material in the
respective bin card regularly. It will indicate the quantity of stock held by the store every time.
For recording, the store keeper maintains store ledger and bin cards.
Issue of material: The store keeper issues the material as per the requisition of the production.
When store keeper received requisition he issues material from the store.
Issuing purchasing requisition: When the stock reaches at ordering level the store keeper sends
purchase requisition to the purchasing department for the fresh purchase of the materials.

Accordingly, the purchasing departments purchases materials as per quantity and quality stated
there in.
Supervision: The store keeper must be coordinate and supervise the duty of the staff under his
control. As he is the head of the store department, he manages the entire department
Further the job of a Storekeeper are as follows :
Maintains Records
Knowing what inventory the store has, when stock is running low and which items customers
request is the storekeeper's responsibility. She keeps detailed inventory records when products
are purchased and returned; notes customer's opinions and arranges for store transfers, compiles
a customer mailing list with sale alerts and coupons, and files and updates employee documents
as necessary. These records must be tidy and organized for others to understand.
Creates and Receives Orders
The storekeeper keeps detailed records so she knows when to reorder supplies or merchandise.
She uses her math and computer skills to generate orders and communicates with sales reps on
sizes, fabrics and delivery times, for example. When merchandise arrives, it is her responsibility
to unpack shipments, assess the inventory, delegate employees to stock the shelves and send back
defective or wrong merchandise in a timely manner.
Keeps Appearences Up
The overall image of the store is the storekeeper's responsibility. She keeps shelves dust-free,
spaces clothes and merchandise appropriately, styles and updates the mannequin's when
necessary, and ensures merchandise labels all face the same way, for example. In addition, the
storekeeper is aware of lighting issues, such as bulbs that need replacing, or cracked tiles in the
bathroom needing repair. She also ensures the store is hazard-free with ample walking room and
that employees follow business and employee state laws.

 Communicates Well
Because the storekeeper juggles the needs of customers, vendors, sales reps, employees and,
possibly, the store's owners, she must have excellent communication skills. She is responsible for
problem-solving, explaining products, answering questions about company policies, and training
and giving employee feedback. Good listening and interpersonal skills, an intuitive nature and
the ability to make quick, spot-on assessments are important for the successful storekeeper

Location and Layouts of the Stores

The location of store should be carefully planned. It should be near to the material receiving
department so that transportation charges are minimum. At the same time, it should be easily
accessible to all other departments of the factory, railway siding, roads etc. Planned location of
the stores department avoids delay in the movement of materials to the departments in which
they are needed.
Stores Layout: The store should be adequately provided with necessary racks, drawers, and
other suitable receptacles for storing materials. Each place where materials are kept is called a
bin. For example- drawer or rack or a corner. Each bin should be seriously and systematically
numbered and for every item a bin allotted, for convenience of access. The number of the bin
should be entered in the store ledger concerned accounts.
After acceptance, the goods should then be moved into their proper location in the stores or to
the department which requires them. There are different methods used for locating goods in the
store. The three methods are: a. Fixed location every regular stock item has a fixed address or
stock location. This is expensive in terms of store space. Accessing stock is easy; b. Random
location any item can be stored anywhere. Here location records are essential. This makes
better use of space; and c. Zoned location a hybrid of fixed and random locations. Allocate
groups of goods to particular zones. Location within a zone may either be fixed or random.
Some Principles of Storage include: a. frequently used items should be nearest to the issue point;
b. things used together should be stored together; c. keep things which are similar to each other

near each other; d. store things in issue batches where possible; and e. isolate dangerous stock
like: i. inflammables ii. Explosives such as oil and gas; f. change location when demand changes;
and in loading racks; i. put light bulky goods near the top; ii. Put small things from waist to
shoulder height; iii. Put heavy things in big compartments low down; and iv. Very heavy things
are best on the floor not on the rack.
Once you have a general idea of where your product is going to go, it is time to decide where to
put your displays and other accessories.
Here are some things to consider:
Your fixtures and displays need to work with your product
It is vitally important that your fixtures and displays work with your product, because they are
one of the main things customers will see. Fixtures are parts of your store that are meant to be
permanent, like cash registers, dressing rooms, and salad bar stations. Displays hold the majority
of your product and are generally more versatile and customizable, like shelving and clothes
racks.
We have a full article on how to select the right displays for your store. Here are two of the
most important factors to consider when matching product and shelving:
Make sure displays/fixtures are a physical match for product
Be sure shelving can hold the weight of the product and that it is the right size(or can be
adjusted) to fit the product dimensions.
A long glass shelf is probably not the best option if you need something to hold 50 pounds of
canned goods. Conversely, you probably do not want unadjustable gondola displays with 3 feet
in-between shelves to hold your shaving cream.

Make sure the displays/fixtures highlight the products and emphasize the brand

1. Do not forget that the main purpose of displays/fixtures is to highlight the product. A unique
display might be great in highlighting a specific product, but can also be detrimental if it is so
unique that it overshadows the product itself and takes center stage.
2. Pick displays that emphasize one brand. If one is are opening an art gallery, than industrial
shelving is probably not a good choice. Conversely, if you are starting a hardware store, custom
wood displays might be a bit much. Know our product, know your brand, and then pick
displays/fixtures that appropriately emphasize who you are as a store.
For more on product displays see our article How to choose and Buy Displays for Your Store.
2. Fixtures/displays need to be at least 3 6 apart to meet ADA specifications
3 feet 6 inches is the minimum distance required by the ADA between store fixtures/displays. In
reality, even if there werent ADA standards, you would want to allow at least this much space
for your customers in-between displays. You want to make sure you have enough room that two
customers can stand side-by-side without feeling crowded. Also, you want to leave enough space
for mothers with strollers to maneuver easily.
3. Account for the transition/decompression zone
As you enter your store, the first 5-15 feet are known as the transition/decompression zone. In
most cases, customers are not going to pay attention to displays or fixtures in this area. As they
enter your store, they have lots of things on their mind and have often not transitioned into
shopping mode yet. Leave this area open and inviting, free from merchandise and displays.
4. Incorporate some speed bumps/break points
As customers leave the transition zone, you want to slow them down. Most of the time,
customers will walk right as they enter your store, so take that into account. Fixtures/displays in
these areas are known as speed bumps or break points, because they act in much the same way as
a speed bump in a parking lot, slowing customers down and getting them to begin looking at
items.

Specialty fixtures that feature hot, new, or seasonal items work great as speed bumps. Customers
are drawn to the unique display and slow down to see what has grabbed their attention.
5. Add some Merchandise Outposts
Merchandise outposts are displays/fixtures throughout your store that are near or in an aisle.
These fixtures are all about impulse buying. This is where you put things like singing alarm
clocks, back massagers, and other similar novelty items. The point is to get your customer to
notice something and then decide they cannot live without it. If you ever walk through a Kohls,
you will see merchandise outposts everywhere
Stores should be located as close as possible to the point of use of materials in order to reduce
material handling charges. This may be difficult to implement where the same material is used at
more than one location within a factory or where special storage conditions are required. Where
possible, specialised stores should be located close to the point of use.
To ensure efficient storage, the following factors need consideration: a. Provide speedy receipt
and issue of materials. Some factors relevant in this regard include:- locating the store close to
the point of entry of materials; locating store close to user departments; locating fast moving
stock close to issue point; having separate receipt and issue points to reduce possible congestion;
and Separate issue points for different groups of materials.
b. Ensure easy location of materials;
c. Facilitate easy identification through proper classification and coding;
d. Keep adequate records of quantities held e.g. Bin cards, Tally cards, and Store ledger cards;
e. Adequate security measures to safeguard materials. Materials should be adequately stored in
such a way that they are appropriately protected against:- fire rust theft Deterioration; and
effects of weather
f. Ensure efficient use of storage space. In this regard, the most appropriate method of storage
should be used for the materials concerned e.g. shelves, bins etc. The appropriate type of store
should be used.

Decentraliosation and decentralisaytion

Concept

And

Meaning

Of

Classification

And

Codification

Of

Materials

Classification and codification of materials are steps in maintaining stores in a systematic way.
Materials are classified in such way that storing, issuing and identifying of materials become
easy. Generally, materials are classified on the basis of their nature. Materials can also be
classified on the basis of quality and utility. For example, materials may be classified as raw
materials, consumable stores, components, spares and tools. Thus classifying materials on
different bases such as nature, quality and utility is called classification of materials.1
For the purpose of identification and convenience in storage and issue of materials, each item of
material is given a distinct name. Such a process of giving distinct names and symbols to
different items of materials is called codification of materials. Good store-keeping requires
proper classification and codification of various items of stores on stock. Stores are generally
classified either by their nature or by their usage. The former method of classification or
classification by the nature of materials is most commonly used. Under this method of
classification, the various items of stores are divided into specific groups like construction
materials, belting materials, consumable stores, spare parts and so on. All the items are grouped,
so that each item of stores will be conveniently codified on alphabetical, numerical or alphanumerical basis and given a distinctive store code number2

Classification and codification of materials is must for an efficient store keeping system. Each
item or materials are classified on the basis of its use, color, shape, nature etc. Similar items are
1 http://accountlearning.blogspot.in/2010/05/clasification-and-codification-of.html

2 Ibid

divided in to sub-groups and numbers of sub-groups are classified under major groups.
All the materials are assigned by a number, or symbol or any other identification mark and this
procedure is called codification. A good store keeping system should be accompanied with a
suitable system of classification and codification.
Codification is the procedure for assigning number or symbol or identification mark for each
item in accordance with proper plan
Methods of Codification

Alphabetical Method: In this method, an alphabet is used to identify a particular item of

material. For example, Iron items may be allotted the alphabet I and R may be
allotted to Rubber items.

Numerical Method: A distinct number is allotted to each item of each item or group of
materials and subgroups perhaps allotted by decimal numbers. For example 01 is
allotted to screws and 02 to bolts etc.

Alphabetical cum Numerical Method: Its a combination of alphabetical method and

numerical method. Along with alphabet a number is also used to identify a material or
group. For example, steel wire1 is identified as SW1, copper wire2 is identified as
SW2 etc.

Advantages of codification

Lengthy descriptions are replaced by a simple code.

Reduce the clerical work

Ease of identification of stores

It is comprehensive

It facilitates mechanized accounting

Secrecy of description can be maintained

It ensures clarity

.
Stock verification can be conducted in one of the three ways:
1.Periodic verification or fixed annual inventory
2 Perpetual or continuous inventory
3 Low point inventory
Under the low point inventory, method companies take physical inventory when the stock is the
lowest, irrespective of the period. Stock taking is naturally irregular. The low point approach
minimizes the time required for actual inventory work because of the small quantities of
materials involved. However, it has the disadvantage of producing an irregular inventory
schedule, which tends to peak the work load for stores personnel.
In the continuous inventory approach, at the beginning of each year, some firms divide their
inventory into 52 equal groups and assign one of them to be physically counted each week. Thus,
the physical inventory operation goes on without interrupting production operation or upsetting
store room activities. This approach has three advantages. It can be planned and worked into
scheduled activities without a shutdown. It can be conducted in an orderly and relaxed manner;
these conditions are also conducive to accurate work. Secondly, there is the possibility of

detecting and eliminating causes for discrepancies without allowing them to continue throughout
the year. Finally, this approach facilitates efficient utilization of stores personnel. In many store
rooms, withdrawals are heavy early in the day and are much lighter on. Thus, when the issue
clerks busy work slacks he will have a backlog of inventory work to do.
In some companies separate staff is appointed for the purpose of continuous stock taking. This
approach involves extra cost and only very large companies can afford it.
In the fixed or periodic inventory, inventory is taken once a year, generally coinciding with the
financial year. This necessitates shutting down the production operation and organizing a special
crew for the inventory job. This approach is ideal for seasonal businesses It is troublesome,
because, it is a major task which must be accomplished in a short time, interrupting production
operations.
Classification and Codification
Good store-keeping requires proper classification and codification of various items stored in
stock. . Proper classification and codification offer several advantages such as:
1. Systematic grouping of similar items for correct identification of each and every item.
2. The usage of long descriptions is simplified and possible confusion avoided.
3. Avoids duplicate stocks of the same item being held under different names, descriptions, brand
names, part number and different stores.
4. Enables reduction in sizes and varieties.
5. Helps in standardization of materials and helps in finding substitutes
6. Can be used as a basic for setting up different stores.

7. To arrange bin cards and records in stores, accounts and inventory control sections in the same
uniform manner.
8. Ensures accuracy in correspondence, records and posting of receipts and issues in appropriate
records.
Principles of Classification and Codification
The following principles should be observed while establishing an effective classification and
codification system:
I. There must be a consistency in the point of view so that, the basis of classification should
remain unchanged for all items.
II. The system of classification must cover the entire range of items for which, it is devised and
at the same time, allow reasonable scope for extension. This principle is that of
comprehensiveness.
III. The third principle is that of mutual exclusiveness which means, that there must be only one
code number possible for any item.
IV. The system developed should be simple enough to be understood and easily adopted by the
non-specialist personnel. This also means that the codification basis when once understood, the
code numbers should be self-explanatory to a certain possible extent. 3
Methods of Classification and Codification
Stores are generally classified on the basis of their nature or usage, the former being the most
common method used. Based on nature, stores are classified into specific groups as shown
below:

3 http://financereading.com/material_classification_and_codification.htm

(1)Rawmaterials
(2)Components
(3)Consumablestores
(4)Spareparts
(5)Tools
(6)Packingmaterials
(7)Work-in-process
(8)Finishedgoods
(9)Hardware.
(10)Motors
(11)Gearbox
(12)CKD Completely knocked down items.
In the cost accounting section, accounting entry for material is initiated when the suppliers
invoice and goods received note from the stores arrives in the section. Goods received note is the
confirmation that materials have been taken on charge or posted in the records of the stores.
Purchase invoice book is a book of original entry for the accounting purchase of materials in the
cost accounting records. For each invoice, the accounts to be debited and credited are analyzed in
this book. The debits can be to accounts in Stock Ledger, accounts in Cost Ledger, accounts in
Fixed Assets Ledger, or accounts in General Ledger. The credits are to the accounts in the
Creditors Ledger (Suppliers Ledger) or Cash. Based on these journal entries, various accounts in
the ledgers are posted and totals are posted in various control accounts.4
Valuation of Materials Received
Invoice price as billed by the supplier is the value of the material received against that invoice
and goods received note. The account of that item is to be debited with the invoice value. But,
there are certain items on the invoice for which alternative accounting practices exist.

4 http://www.citeman.com/1075-stores-verfication-classification-codification.html#ixzz423O5lO2n

a. Cash discount: Cash discount is discount allowed by the supplier for payment of the invoice
amount before a specified date. If all bills are paid before the specified date as a policy by the
company, such discount may be deducted from the invoice amount and the net amount is taken
as the value of material received. But if on certain invoices it is taken and on certain invoices it is
not taken, then procedure is to account for the material at the invoice value only. Discounts are
accounted for separately and a Store Adjustment Account is used to accumulate the discounts
received and the amount is may be charged to overhead or to the Profit and Loss Account. If a
separate Costing Profit and Loss Account is prepared, it is charged to it.
b. Transport charges: When transport cost is born by the supplier, there is no accounting issue.
When transport expenses are paid separately, they should be accounted for in a journal entry and
then added to the invoice value of the material. When several items are received in one
consignment, allocating that cost to many items may not be practicable. Then transport charge is
accounted for as overhead. Some companies predetermine a transport cost rate for each type of
material and add to the invoice amount of the material in valuation. The difference between such
allocated amount for a period and the actual cost incurred in transportation is taken to overhead
cost or adjusted to Profit and Loss Account or the Costing Profit and Loss Account as per the
companys accounting policy.
c. Other amounts billed: the supplier separately charges several items apart from the price like
excise duty, sales tax, and handling charges. These expenses are added to the value of material
received whenever they can be directly allocated to the particular materials. Costs which cannot
be

allocated

have

to

be

charged

to

overhead

costs.

d. Receiving, inspection, storage, material accounting, and purchased department costs:

Normally these costs are not identified with value of material received. The accounting for these
expenses or costs is important from inventory management point of view. Inventory carrying cost
and ordering cost which are two important inputs for decision making in determining economic
order quantities are determined using these items of cost. If some companies want to charge
these costs to materials, they have to predetermine allocation rates of each of these items of
costs.

e. Apportionment of joint purchase costs: A lot material containing various quality levels may be
purchased. But in the stores, the quality levels are segregated and issued for appropriate jobs. In
this instance, each quality level of the material is to be valued separately. But invoice amount is
for the whole lot. In this case, the current market prices or the recent available market prices are
taken as the base and the total value of the lot is ascertained. Any difference is distributed to the
market value of various grades pro rata. Any common items of incidental expenditure if
significant and practical is also allotted pro rate based on the invoice value of the items involved.

f. Extra quantity received gratis: If any extra quantity is supplied gratis by the supplier, it has to
be accounted for in the quantity.

g. Cost of Packaging/Containers: When containers come along with the material and are retained
by the firm and sold as scrap, this value is credited to overhead account. When the disposable
value is significant, the operating departments are asked to return the container to the store, and
the

material

return

note

is

valued

at

predetermined

rate.

In the case of returnable containers, the cost of the material and cost of containers (returnable
value) are shown separately, and only cost of containers not returned is charged to overheads.5
Provisional Pricing of Issues
Sometimes, there is a time lag between the dates of supply of materials and the receipt of
suppliers bill. If the accounts of period are to be finalized, a provisional pricing of issues is done
based on the information in the purchase order. Any difference between the provisional value and
actual value is either adjusted to the balance in the account or charged to overhead. This can be
done if differences are small. If differences are significant, the issues are repriced and while
periodic statements may not be revised, the annual audited statements will be based on reprised
material

5 http://www.citeman.com/1075-stores-verfication-classification-codification.html

values.

Speciman