Chapter 3-Material Cost
Chapter 3-Material Cost
Chapter 3-Material Cost
MATERIALS
CONDUCTED BY:
ROSLIANA BINTI RAZAB
ACA 2407
Learning Objectives
Stores
• Stores in a company comprises many other items besides raw
materials, such as tools, equipment, maintenance repair items,
factory supplies, components, fixtures. Sometimes, finished
goods and partly finished goods are also included within the
scope of this item.
Material Control
Various aspects of Material Control
1. Purchasing Control
2. Stores Control
3. Issue Control
Bin Card
• It is the quantitative record of all receipt of materials, issue of
materials and the balance of materials on a particular day. Bin
Card do not record the amount of receipt or issue, it records
only the quantity by store department.
Stock ledger
• Stores ledger is prepared by accounting department ,that ledger
is a record of quantities & values.
02.ABC System
• In this inventory are classified according to the value of usage.
Materials are classified as A, B and C according to their value.
• The high value items should be controlled more carefully while items having
small value though large in numbers can be controlled periodically.
03. Just InTime Inventory
• Material purchased from supplier should directly go the
assembly line, i.e. to the production department. There should
not be any need of storing the material.
1st Bin
2nd Bin
05.Stock Level
Stock level
(Units)
Maximum
level
Re order
level
Minimum
level
Time (Days)
01.Re-order Level
• This level is fixed for deciding the time of placing an order. If the stock of
materials reaches this level, fresh order is placed
04.Average Level
• This level is the average of the maximum and minimum level
EOQ = 2*D*Co
CH
EOQ = 2*D*Co
CH
EOQ = 2 * 8000
*40
0.5*50%
= 1600 units
• No of order = D/Q
= 8000/1600
= 05
In EOQ, Co=CH
Cost $
300
Total cost
Minimum cost
200
Carrying cost
100
Ordering cost
EOQ=1600 units Units per order
800 1600 2000
Cost $
300
Total cost
Minimum cost
200
Ordering cost
Pricing of Issues
• Material is issued to production and it is necessary to find out the
consumption value of the material. The various methods of pricing of
issues are,
I. FIFO
II. LIFO
III. WAC
IV. SAP
• FIFO: As per this method, material received first is issued first. Thus the
material in stock at the beginning of a period is issued firstly and then the
issues are made according to the dates of purchases made
• LIFO: under this method is that the material which is purchased last is
issued first to the production. Therefore the issue should be charged at the
latest prices
• Simple Average Cost Method Under this method, the issues are
charged at the average price of the material purchased without taking into
consideration the quantities involved in the same
• Weighted Average Method: This method takes into consideration the prices
as well as the quantities of materials purchased. Thus weighted average is
computed after each receipt by dividing the total amount by the total quantity
Inventory Turnover
• Inventory turnover ration enables the management to avoid capital
being locked up in undesirable stocks. This ratio indicates the
efficiency or inefficiency with which inventories are maintained.