Other Documents
a. Store or material requisition
A material requisition sends by the production department to stores for the
issue of raw materials for production. An authorise officer from production will
sign it and stores will issue the material. It is then used as a source document
for:
• Updating the bin card in stores.
• Updating the stores ledger account in the inventory costing department.
• Charging the job, overhead or department that is using the materials.
Other Documents
b. Goods or material return note
A materials returned note will accompany any unused material back
to stores. In effect this document is reverse of a material requisition
and therefore it must contain all the information that is present on
material requisition and will be used as the source document to
update the same records. This time, though, the material will be a
receipt into stock and a deduction from the job originally charged
with the material issued.
Other Documents
c. Goods/ Materials transfers note
A material transfer note is usually raised when material issued to one
department is transferred to another department directly. This note
shows the name of both, transferor and transferee departments. This
process enables managers to appropriately allocate the cost
between two departments.
Documents – Recording Material
Material is an important item purchased by manufacturing business.
These are kept in warehouses or in stores. Two types of stock records
that are used:
1. Bin Card
2. Stock Ledger Account
Documents – Recording Material
1. Bin Card
The information on the bin card would be as follows:
• Description of the material (type of material).
• Stock code.
• Stock unit (meters, kgs, boxes, etc).
• Bin number (the location of the items in the store).
Documents – Recording Material
• Issues to production record: date, quantity, material requisition
number against which the material was issued as a reference
number.
• Receipts record: date, quantity, good received note, Materials
Returned Note (MRN) for goods that were returned from the
production department because they were not used in
production (obviously the material will also be sent back to the
store with the materials returned note).
Documents – Recording Material
• Balance of the quantity of stock on hand after each stock
movement (after each time stock is received or issued).
• It can be manual or computerized inventory records that are
maintained and kept in the store department.
BIN CARD DOES NOT SHOW THE AMOUNT/COST OF STOCK
Documents – Recording Material
2. Stock Ledger Account
• It carries all the information that is in bin cards buy they also have
the value/cost of stock units. This means that total cost of each
issue, receipt and that of the balance amount is shown in the store
ledger accounts. It can be manual or computerized and this would
enable the amount of free stock to be monitored.
• BIN cards are kept in the store but the store ledger accounts are
kept in the inventory costing department.
Stocktaking
A stock taking is the counting and recording of the physical quantities
of each item of stock at regular interval (monthly or annually) and the
checking the balance against the stock record.
Stocktaking
There are two methods of stocktaking:
• Periodic Stocktaking: All stocks are counted and updated on
specific date periodically, usually at the end of the accounting
period.
• Continuous Stocktaking: Items are counted after each stock
issue, receipt or return. Valuable items are checked more
frequently.
Perpetual Inventory System: Recording of each and every issue
and receipt and update balance after each movement.
Stock Valuation Methods
Pricing of Materials Issued
Materials are purchased in large quantities at different prices and
issued to production in smaller lots. It is necessary to price the material
requisitions so that the cost centres (or cost units) can be charged in
a fair and consistent manner.
Stock Valuation Methods
Methods Of Pricing Of Raw Materials:
1. First-In-First Out (FIFO)
2. Last-In-First Out (LIFO)
3. Weighted Average (AVCO)
Stock Valuation Methods
1. First in First Out (FIFO) Method
• The earliest price of materials is used for each issue.
• If prices are rising, issued price will be lower, vice versa.
• Closing stock is valued at most recent prices.
Stock Valuation Methods
Example:
600 units of component J, valued at a price of Rs.10.00, were in inventory on 1
May. The following receipts and issues were recorded during May.
3 May Received 800 units @ Rs.12.50 per unit
10 May Issued 1,000 units
17 May Received 700 units @ Rs.15.00 per unit
25 May Issued 500 units
Using the FIFO method, the total inventory value at the end of May?
Solution:
Date Receipts Issues Balance
Units Rs. Rate Rs. Amount Units Rs. Rate Rs. Amount Units Rs. Rate Rs. Amount
Stock Valuation Methods
Advantages
• This method is adopted by most of the organisations as this
method is assumes the oldest receipts are issued first.
• Issued prices are based on the prices actually paid for the stock.
• Closing stock values are based on the most recent prices.
• It is an acceptable method for companies act 1985, IAS 2, and for
taxation purposes.
Stock Valuation Methods
Disadvantages
• It uses the older prices and this can affect the costing of worked
done.
• In time of rising prices FIFO value stock at out of date prices which
lower the cost of sales figure thus increases the profit figure which
is not prudent.
