PURCHASI

NG
MATERIAL
S
Costing and Pricing
Prelim Report
PURCHASI
NG
MATERIAL
S
COMPUTERIZED
MATERIALS MATERIALS
01 CONTROL 03 PURCHASING
SYSTEM

MATERIALS
CONTROL
02 PURCHASING
PROCEDURES
04 PROCEDURES
 Material Control

Certain requirements are essential to an effective internal

control system for materials, as follows:
 Materials of the desired quality must be available when
needed.
 Correct quantities and types of materials must be on hand at
the right time for production to proceed on schedule.
 Materials must be purchased at the most favorable prices.
 Materials must be protected from loss or theft.
 Risks of spoilage and obsolescence must be minimized,
 Cost of materials handling and storage must be kept to a
minimum.
 Organization for
Control
1. Purchasing Department: Responsible for sourcing
materials from reliable suppliers at the right price and time.
2. Receiving Department: Inspects incoming shipments and
verifies quantities received against orders.
3. Storeroom (Stockroom): Protects materials from
deterioration and ensures proper issuance.
4. Accounting Department: Records all material
transactions.
5. Cash Department: Pays invoices approved by the
accounting department.
 MATERIAL
S
PURCHASIN
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Purchasing Agent
- responsible for purchasing materials
- must buy materials in correct quantities, at the proper
time and at lower prices.

Purchasing Agent’s Staff

- part of the procurement section of the purchasing
department
- keeps informed of various sources of supply, negotiates
purchase contracts, prepares purchase orders, and
follows up deliveries.
 MATERIALS PURCHASING
PROCEDURES

REORDER PURCHASE PURCHASE RECEIVING

POINT REQUISITIO ORDER REPORT
N

1 2 3 4
 MATERIALS PURCHASING
PROCEDURES

COMPARIN RECORDING PAYING THE

G THE VOUCHER
DOCUMENT VOUCHER
S
5 6 7
 1. Reorder Point

To determine when an item has reached a level at which it

should be reordered, the following factors should be
considered:
• The frequency at which the materials is used.
• The length of time it takes for the material to be delivered
from the supplier after an order has been placed. This is
known as the lead time.
• The minimum level of materials that should be
maintained to ensure that the company does not run out
of materials. This is known as the safety stock.
 2. Purchase Requisition

Once the materials reach the reorder point, the storeroom

supervisor completes a purchase requisition requesting that
materials be ordered.

• Purchase Requisition is a properly approved, written

request for materials and is prepared in duplicate.
• The original copy is sent to the purchasing department as
a request for the materials.
• The duplicate copy is retained in the storeroom files.
 3. Purchase Order
First…
Choose the Supplier
- in choosing the supplier, consider:
• Dependability
• Quality of material
• Delivery date
• Price After choosing the supplier, the
purchasing agent prepares a purchase
order.
Purchase Order is a written
authorization to the supplier to ship the
specified material.
 3. Purchase Order

The purchase order is prepared in five copies to be

distributed as follows:
1. Suppliers – as an authority to deliver the materials.
2. Storeroom – as a notification that the materials
requested are on order.
3. Receiving Department – as an authorization to
accept an incoming shipment.
4. Purchasing Department – (2 copies) for the file in
unfilled order.
 4. Receiving Report

Receiving Clerk
• Responsible for receiving, unpacking, checking quantities, and
transferring materials from the supplier to the storeroom.
- Upon receipt of the materials, the Receiving Clerk compares
the contents of the shipment with their copy of the purchase
order.
After counting and inspecting the materials, the clerk prepares a
receiving report.
 4. Receiving Report

Receiving Report shows all details of the shipment, including

comments on the condition of the materials received.

The receiving report is prepared in quadruplicate:

1. Purchasing Department – (1 Original, 1 copy) where they are
compared with the purchase order and the supplier's invoice
2. Storeroom – (1 copy) accompanies the materials to the storeroom for
comparison with the purchase order and entry in the storeroom
records.
3. Receiving Clerk’s Permanent File – (1 copy) The storeroom
supervisor signs the final copy to confirm that the materials have
reached the storeroom.
 5. Comparing Documents

When the invoice is received from the supplier, it is sent to the

purchasing department
The purchasing department then compares the supplier's invoice
(purchase invoice) with the purchase order and the receiving report
to make sure that:
• Materials ordered have been received in good condition and
these are listed only on the invoice.
• Terms, unit prices, shipping charges, and other details are in
accordance with order specifications
• Computations are correct.
 5. Comparing Documents

If all documents are in order, the purchase invoice, receiving

report, and the purchase order are stapled and filed in a
completed purchases folder arranged alphabetically by supplier.

Next, a check voucher also called disbursement voucher is

prepared with supporting documents attached to it.

Once approved, the voucher is sent to the accounting

department for recording.
 6. Recording the Voucher

1.Document Check by Voucher Clerk

2.Checking Account Distribution
3.Entry in Voucher Register
4.Debit and Credit Entries
5.Filing in Unpaid Vouchers
 7. Paying the Voucher

1. Removing from Unpaid Vouchers File

2. Check Preparation
3. Recording in Check Register
4. Marking the Voucher as "Paid"
5. Sending the Check to the Supplier
6. Updating Voucher Records
7. Filing in Paid Vouchers File
COMPUTERIZED
MATERIALS
PURCHASING SYSTEM
On-line Purchasing System for materials allows companies to
have up-to-date information and improves the organization’s
purchasing process.

1.Components of the Computerized Purchasing System:

• Inventory file: Contains information about available stock.
• Supplier file: Stores details about different suppliers.
• Open purchase order file: Keeps track of ongoing purchase
orders.
COMPUTERIZED
MATERIALS
PURCHASING SYSTEM

2. Purchase Requisition Process:

• When a purchase requisition is received, the purchasing agent
uses the system to:
- Access the supplier file.
- Choose an appropriate supplier.
- Generate a purchase order, which is then stored in
the open purchase order file.
COMPUTERIZED
MATERIALS
PURCHASING SYSTEM
3. Order Receiving and Processing:
〜 Upon the arrival of the ordered items:
• The receiving clerk counts and records the items in the receiving
room terminal.
• Any items that need to be returned are noted.
〜 The computer system:
• Compares the items ordered (from the open purchase order file)
with the received items.
• Prepares a receiving report.
• Updates the open purchase order file, inventory file, and supplier
file to reflect the received items and any returns.
COMPUTERIZED
MATERIALS
PURCHASING SYSTEM

4. Advantages of the
Computerized System:

• Information Availability
• Process Improvement
CONTROL PROCEDURES

Five commonly used control procedures:

1. Order Cycling:
 Materials are regularly reviewed based on a predetermined
cycle.
 Orders are placed to maintain the desired inventory level.
2. Min-max Method:
 Minimum and maximum inventory thresholds are
established.
 Reordering occurs when the inventory level reaches the
minimum threshold.
 CONTROL PROCEDURES

3. Two-bin Method:
 Primarily used for inexpensive items.
 When the first bin is depleted, an order is placed.
 The second bin ensures coverage until the order is received.

4. ABC Plan:
 Applied to items with varying values.
 More expensive items receive closer monitoring and more frequent review.
 A items: Most expensive, typically kept in small quantities.
 B items: Moderately priced, with moderate quantity on hand.
 C items: Inexpensive, usually stored in large quantities.
CONTROL PROCEDURES

5. Automatic Order System:

 Orders are automatically triggered when inventory levels
hit a predetermined threshold.
 This system is most effective when integrated with a
computerized inventory management system.
END