1.

SCARP:
➢ The incidental residue obtained from manufacturing process having little
recover value is called as scarp.
➢ Scarp is physically visible but requires no further processing & can’t be
used as raw materials again.
➢ If the value of scarp is negligible the cost of scarp changes to good units.
➢ If the value of scarp is significant the net proceeds of scarp with deducted
from material cost (In the form of factory overhead).
2. SPOILAGE:
➢ The material badly damaged in the process of manufacture which cannot be
rectified and brought back to normal specification is termed as spoilage.
➢ It arises due to some defect in either material or in equipment.
➢ If spoilage is traceable to a specific job, cost is charge to that job.
➢ The normal spoilage cost is charge to factory overhead and abnormal
spoilage cost is transferred to costing profit and loss account.
3. DEFECTIVES:
➢ The semi-finished or finished product which do not confirm to standard
specification or quality are called defective.
➢ The defectives can be rectifying by incurring additional expenditure on
labour and material.
➢ If defectives are due to normal course of production, it is charged to good
units.
➢ If defectives are due to abnormal reasons, it is transferred to costing profit
and loss account.
4. RE-ORDERING LEVEL:
➢ Re-order level is the quantity of material at which the store keeper places
requisition for fresh material.
➢ This level is fixed in between maximum level and minimum level.
➢ While fixing re-ordering level the following factors are considered: -
❖ Minimum or safety stock.
❖ The lead times.
❖ The consumption pattern during lead time.
5. MINIMUM LEVEL (SAFETY STOCK LEVEL):
➢ The minimum quantity of material that must be held at all times is known
as minimum level.
➢ The minimum quantity is held so that production will not be held up for
shortage of material.
➢ The minimum level is fixed taking into account the following factors: -
❖ Re-order level.
❖ Lead time.
❖ Rate of normal consumption.
6. MAXIMUM STOKE LEVEL:
➢ The quantity of material above which stock shouldn’t be allowed to exceed
is known as maximum stock level.
➢ The idea of fixing maximum level is to avoid unnecessary blocking of
capital and reduce cost of storage and obsolescence.
➢ While calculating fixing maximum level the following factors are taken
into consideration: -
❖ Availability of storage space.
❖ Availability of funds.
❖ Re-ordering quantity.
❖ Re-ordering level.
❖ Future price behaviour.
❖ Rate of consumption & lead time.
7. DANGER LEVEL:
➢ The quantity of material in stock at which normally issues are stopped and
issue is made only for important jobs under specific instruction is known as
danger level.
➢ When stock reaches at danger level it indicates that urgent action be taken
to purchase fresh materials.
8. ECONOMIC ORDERING QUANTITY (EOQ):
➢ Economic ordering quantity refers to quantity to be order in one order so
that the total carrying cost and ordering cost will be minimum.
➢ It is the most favourable quantity that should be purchased each time in
order to minimise the total cost.
➢ It is calculated by the formula: -
EOQ=√2𝑐𝑜
𝑖
, where
C -Annual requirement of material.
O-Ordering cost per order.
 I -Carrying cost per unit per annum.
9. STATE THE ASSUMPTION OF EOQ:
➢ Annual consumption is known.
➢ Price of material doesn’t change.
➢ Carrying cost is constant.
➢ Market of raw material is perfectly competitive.
10. ABC ANALYSIS:
➢ Materials in stock are analysed on the basis of value called ABC or
proportional parts value analysis.
➢ The purpose of ABC analysis is to focus on better attention and care to
costly materials.
➢ It is popularly called as Always Better Control.
➢ The materials are classified as: -
❖ A items:
▪ High value items contain a small percentage of total quantity.
❖ B items:
▪ Medium value items where percentage value is almost equal to
percentage of c.
❖ C items:
▪ Low value items constituting a high percentage of items.
11. BILL OF MATERIAL (MATERIAL SPECIFICATION):
➢ A bill of material is a complete list of all materials required for the
completion of a job.
➢ It is a special form of requisition in which name & code of all materials
required are stored in quantities.
➢ This document is prepared by department using standard materials.
➢ It is prepared in triplicate (3) copies.
➢ This document gives an advance intimation to the store keeper to procure
for necessity materials.
12. MATERIAL ABSTRACT (MATERIAL ISSUE ANALYSIS SHEET):
➢ Material abstract is prepared by store keeper job wise on every week or fort
night (half of a month).
➢ This statement helps to know the value of material consumed in each job.
➢ It is helpful in posting of stores control account.
13. FIFO (FIRST IN FIRST OUT):
➢ FIFO is based on principles that materials purchased first are issued first.
➢ After materials purchased in the first lot is fully exhausted, the issue is from
the second lot and so on.
➢ This method is suitable when prices are falling.
➢ Material in hand (closing stock) is valued at current market price.
14. LIFO(LAST IN LAST OUT):
➢ LIFO method of pricing is issued based on the principles that materials
purchased last and are issued first.
➢ In other word the last lot of material purchased is issued to production first
and when it is exhausted issues are made from previous lot.
➢ This method is suitable when prices are rising.
➢ The stocks are valued at old purchase price.
15. HIFO (HIGEST IN FIRST OUT):
➢ In this method material issue materials of high price in stocks are issued
first.
➢ The purpose of high price used to value the closing stock at a lowest price.
16. BASE STOCK:
➢ Base stock is the minimum amount of stock that is always held in store to
deal with emergency situations.
➢ The base stock is created out of first lot of purchase.
17. AVERAGE PRICE METHOD:
➢ When materials purchased in different lots them identify is lost, materials
are issued at average price.
➢ Average price is of two types: -
❖ Simple average price.
❖ Weighted average price.
18. SIMPLE AVERAGE PRICE:
➢ Simple average price is a price which is calculated by dividing the prices of
materials in stock by the number of prices.
➢ While calculating simple average price quantities are ignored.
𝑠𝑢𝑚 𝑜𝑓 𝑢𝑛𝑖𝑡 𝑝𝑟𝑖𝑐𝑒𝑠 𝑜𝑓 𝑠𝑡𝑜𝑐𝑘𝑠
➢ Simple average price = .
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑟𝑖𝑐𝑒𝑠
19. WEIGHTED AVERAGE PRICE:
➢ While calculating average price weightage is given to quantities of stock in
hand.
➢ Weighted average price is calculated by dividing the total cost of material
in stock by total quantities of materials in stocks.
𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙𝑠 𝑖𝑛 𝑠𝑡𝑜𝑐𝑘
➢ Weighted average price =
𝑇𝑜𝑡𝑎𝑙 quantities 𝑜𝑓 𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑖𝑛 𝑠𝑡𝑜𝑐𝑘
20. INFLATED PRICE:
➢ When materials are subject to natural wastage, these are issued to
production centre at a price more than cost price called inflated price.
➢ This is due to loss of materials by natural or climatic factors.
21. STANDARD PRICE METHOD OF MATERIAL ISSUE:
➢ Standard price is a price determined price which is used for issue of
materials.
➢ Materials are issued at a standard price by the organisation which adopts
standard costing method.
22. EMPLOYEE PLACEMENT REQUISITION:
➢ Employee placement requisition is a form used by a department head
requiring some employees.
➢ The requisition is sent to the personnel department.
➢ The requisition shows the number and category of employees required
along with the job specification.
23. EMPLOYEE HISTORY CARD:
➢ The personnel department maintains a complete record of each worker
working in the organisation.
➢ The record is known as employee history card.
➢ The record contains details about the employee like :-
❖ Date of joining.
❖ Name and address.
❖ Department where in work.
❖ Basic pay.
❖ Educational qualification.
❖ Date of birth etc.
24. LABOUR TURNOVER:
➢ The change in labour force in an organisation is known as labour turnover.
➢ Labour turnover is the percentage change of labour force in an organisation.
➢ Labour turnover affects the production in an organisation.
25. NAME THE METHODS OF MEASUREMENT OF LABOUR
TURNOVER:
➢ Separation method.
➢ Replacement method.
➢ Flux method.
26. NAME THE DIFFERENT CAUSES OF LABOUR TURNOVER:
➢ Personal causes.
➢ Avoidable causes.
➢ Unavoidable causes.
27. JOB ANALYSIS:
➢ Analysing each operations of a job is to determine the qualities needed by
workers to perform a particular task is known as job analysis.
➢ It helps in:-
❖ Fixing wage rate for different jobs.
❖ Recruitment of right persons.
❖ Providing right training to influence correct skill and knowledge
ability.
28. JOB EVALUATION:
➢ Ascertaining the money value of a job is known as job evaluation.
➢ It is a systematic method appraising the worth of each job in relations to
other jobs.
➢ Job evaluation is made in terms of its characteristics like: -
❖ Knowledge, education and skill, training required.
❖ Physical, mental required.
❖ Responsibility required.
❖ Working conditions.
29. MERIT RATING:
➢ In merit rating each employee is rated in respect on number of traits such as
initiating, responsibility, punctuality, co-operation, knowledge and
obedience etc.
➢ Merit rating forms the basis of transfer, promotion, retrenchment.
➢ It encourages workers to improve their efficiency.
30. NAME THE DIFFERENT COMPONENTS OF LABOUR COST:
➢ Monetary benefits.
➢ Fringe benefits.