Material Costing

MATERIAL

 All commodities that are consumed in the

process of manufacture.
 Component parts used in a product.

 Any material used in production but wholly

consumed in the production process.
 Any primary packing material, container sold
with final product.
MATERIAL CONTROL

 Objectives of material control or inventory

control
 No under stocking
 No over stocking

 Economy in purchasing

 Proper quality

 Minimum wastage

 Information about materials

ESSENTIAL REQUIREMENTS OR PRINCIPLES OF
INVENTORY CONTROL
 Coordination and co-operation between various
departments
 Central purchasing department

 Proper classification and codification of

materials
 Material requirement should be planned

 Up-to-date information

 Adequate records
 Adequate safeguards and supervision
 Minimum, maximum levels should be fixed

 Budgetary control

 Internal audit and internal check

 Proper management regarding purchases,

issues and stock of materials.
ABC TECHNIQUE

 “Always better control”

 Materials are analyzed according to their value
so that costly and more valuable materials are
given greater attention and care.
 A item: high value, tightest control

 B item: medium value, normal control

 C item: low value, simple & economical control

MAXIMUM LEVEL

 Level above which stock should not normally be

allowed to rise.
 Maximum level= reorder level+ reorder qty. –
(min. consumption *min. reorder period)
MINIMUM LEVEL

 Level below which stock should not normally be

allowed to fall.
 Minimum level= reorder level –(normal
consumption *normal reorder period)
REORDER LEVEL

 Level of material at which purchase requisition

is initiated for fresh supplies.
 Reorder level= max. consumption * max.
reorder period
REORDER QTY. (ECONOMIC ORDER QTY./ EOQ)

 Quantity for which order is placed when stock

reaches reorder level.
 Ordering costing

 Cost of carrying stock

PURCHASE MATERIALS

 Just –in- time purchasing

 Centralized purchasing

 Decentralized purchasing
PURCHASE PROCEDURE

 Purchase requisition
 Selection of suppliers

 Purchase order and follow-up

 Receipt of materials

 Inspection and testing of materials

 Return of rejected materials

 Passing invoices for payment

PURCHASE PRICE

 Quantity discount
 Trade discount

 Cash discount

 Sales tax and other levies

 Transport charges

 Cost of containers
STOREKEEPING
 Objectives of good storekeeping
 Protection of materials from losses
 Avoiding over-stocking and under-stocking
 Economical use of storage space
 Up-to-date stores records
 Immediate location of materials required
 Facilitating perpetual inventory
 Speedy receipt and issues of stores
 Minimize storage cost
CONT…
 Functions and duties of storekeeper:
 Maintaining materials in a tidy manner
 Maintenance of records of materials received, issued and in
stock
 Issuing materials against duly authorized store requisitions
 Further supplies when reorder level is reached on any
material
 Preventing the entry of unauthorized persons in the
storeroom.
 Periodic comparison of bin card balances with physical
quantities in the bins
 Advising management on obsolete and slow-moving stocks
CLASSIFICATION AND CODIFICATION OF
MATERIALS
 A symbol may be assigned to each item of material
which is known as a code.
 It may be numeric, alphabetic, or a combination of
numerical and alphabetical symbols.
 Basic principles of coding:
 Exclusive
 Clear
 Brief
 Elastic
 Mnemonic
STORE RECORDS
 Perpetual inventory records
 Bin card
 Store ledger

 Documents
 Goods received note
 Store requisition note
 Bill of materials (specification of material)
 Material return note
 Material transfer note