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Materials
Control
Material is one of the important elements of cost and it has been observed that in the total cost structure of a product, material content is about 60 to 65%. The substantial proportion of material cost in the total cost demands more and more attention of the management towards this element. The term ‘material’ generally used in manufacturing concerns, refers to raw materials used for production, sub-assemblies and fabricated parts. The terms ‘materials’ and ‘stores’ are sometimes used interchangeably. However, both the terms differ. ‘Stores’ is wider in meaning and comprises many other items besides raw materials, such as tools, equipments, maintenance and repair items, factory supplies, components, jigs, fixtures. Sometimes, finished goods and partly finished goods are also included within the scope of this item. This chapter aims at discussing various aspects of material control such as purchasing, storekeeping, issuing and other aspects like material losses etc.
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Concept and
objectives of Materials Control
Material
cost constitutes a prime part of the total cost of production of manufacturing
firm. Proper accounting, therefore is required for controlling the material
through purchase control, stores control, issue control and control over
various losses. Material control basically aims at efficient purchasing of
materials, their efficient storing and efficient use or consumption. The following
are the objectives of material control.
Material
of desired quality should be available when needed for efficient and
uninterrupted production.
Material
should be purchased only when it is needed and in most economic quantities.
Investment
in material is maintained at minimum level consistent with the operating
requirement.
Purchasing
of material will be made at the most favorable prices under the best possible
terms.
Material
is stored in such a way that the objective of protection is met fully and at
the same time material is made available easily.
Issues
of materials are authorized properly and are accounted for properly.
Materials
are, at all the time, charged as the responsibility of some individual.
Steps
in Material Control
The material control is ensured by laying down proper procedures for Purchasing, Storing, Issuing and minimizing material losses by identifying slow moving, obsolete, dormant material and also by minimizing scrap, wastages, defectives and spoilages. These steps are discussed below.
Purchasing and Receiving: Purchase procedure differs from business to business, but all of them follow a general pattern or procedure. There should be proper Purchase Procedure to ensure that right type of material is purchased at right time, in right quantity, at right prices and at right place. All these things require a well-defined procedure of purchasing. The steps in Purchase Procedure are explained below.
Purchase Requisition: A form known as ‘Purchase Requisition’ is commonly used as a format requesting the purchase department to purchase the required material. Normally the purchase equisition is issued by the Stores Department when the quantity of the concerned material reaches the minimum level. Only in the cases of materials, which is not kept in the stores on regular basis, the requisition is issued by the concerned department. Purchase requisition has information like the quantity required, the expected date of receipt, the department in which the material is required, description of material etc. Copies of the purchase requisition are sent to the Accounts department and the concerned department who is in need of the material.
Purchase Order:
After the receipt of purchase requisition, the purchase department places an order
with a supplier, offering to buy certain material at stated price and terms.
However before issuing the purchase order, quotations may be invited from
various suppliers for arriving at the best deal. The purchase department
usually keeps a list of suppliers from whom the quotations are invited. The
quotations received are examined on various parameters like price, delivery
period, terms and conditions, quality of material etc. After this, purchase
order is issued to the selected supplier. It should be remembered that a
purchase order is a legal document and it results into a contract between the
company and the supplier. Hence the terms and conditions in the purchase order
should be drafted clearly without any ambiguity.
Receiving the
Materials: The
receiving department performs the function of unloading and unpacking materials
which are received by an organization. This will need an inspection report
which is sometimes incorporated in the receiving report, indicating the items
accepted and rejected with reasons. Copies of the receiving report along with
the inspection report are sent to various departments like purchase, stores,
concerned department, accounts department and costing department.
Approval of
invoice: Approval
of invoice indicates that goods according to the purchase order have
been received and payments can be made for the same. However if the goods are
not according to the quality ordered or are in excess of the quantity specified
or are damaged or are of inferior quality, payment is withheld.
Making the
Payment: After
the invoice is approved the payment is made to the supplier. The purchase
procedure is completed with the payment released.
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