What is Material Control? Explain the its need and define the requirements of system of cost control
Material control
is the system that ensures the provision of the required quantity of material
of the required quality at the required time with the minimum of capital
investment. It covers the following functions:
(i) Stock
control
(ii) Scheduling
of requirements
(iii) Purchasing
(iv) Receiving
and inspecting
(v) Storing and
issuing.
Need for
Material Control:
One of the first
steps in the installation of a cost system is planning the proper control of
materials and supplies from the time orders are placed with supplier until they
have been consumed in plant and office operation or have been sold as
merchandise. Material represents an important asset and is the largest single
item of cost in almost every business; accordingly, the success or failure of a
concern may depend largely upon efficient material purchasing, storage,
accounting, utilisation and control.
Where materials
are not properly controlled, excess stock of some items are likely to occur
with a result unnecessary tying up of capital and loss through deterioration
and obsolescence. Shortages of other materials may arise at the time when they
are urgently needed and production will then be delayed.
The purchasing
of materials is a highly specialized function. By ordering the right quantity
and quality of material at the most favourable price, and by ensuring that it
arrives at the right time, the efficient buyer is able to make a valuable
contribution to the success of a business.
Efficient
material control costs out losses and forms of waste that otherwise tend to
pass unnoticed. Theft, misappropriation, deterioration, breakage and additional
storage costs can be reduced to a minimum by proper controls, and much
avoidable idle time in the factory will be cut out if materials are available
to meet the demands of the production staff. Finally, and most important to the
cost accountant, it is impossible to produce reliable costing information if
the records of material issues are unsatisfactory, because a cost statement
cannot be more accurate than the information on which it is based.
Requirements of
a System of Material Control
The important
requirements or essentials of adequate and satisfactory system of material
control are as follows:
(i) Proper
co-ordination: Proper co-ordination of all departments involved, in material
purchasing, receiving, testing, approving, storage, issue and in accounting, is
essential.
(ii) Competent
Purchasing agent: Centralisation of purchasing in a purchasing department under
the direct and authority of a competent and trained purchasing agent is also
considered essential.
(iii) Use of
Standard Forms: The use of standard forms for orders, requisitions etc, upon
which written and signed instruction are given, are essential for proper
control of materials.
(iv) Control by
budgeting material and Equipment: Use of materials, supplies and equipment
budgets so that the economy in purchasing and use of materials can be realized,
is important factor for adequate control of material.
(v) Storage
Location: Storage of all materials and supplies should be in a designated
location properly safe guarded under supervision and proper planning should be
there for storing and issuing of materials.
(vi) Operation
of perpetual Inventory: Operation of proper perpetual inventory system should
be used so that it is possible to determine at any time the amount and value of
each kind of material in stock. It also enables the comparison of book
inventory with the results of physical counting.
(vii) Standards
or Levels to be fixed: A minimum quantity of each item of material, below which
point the inventory is not allowed to drop, and a maximum quantity, above which
stock is not carried should be fixed. In the same manner ordering level and
Economic Order Quantities may be determined.
(viii) Storage
Control and Issue: The proper operation of a system of stores control and issue
is introduced so that there will be delivery of materials upon requisitions to
departments in the right amount at the time they are needed.
(ix) Internal
Check: The operation of internal check should be introduced to ensure that
transactions involving materials and equipment are checked by reliable and
independent officials.
(x) Development
of Controlling Accounts and Subsidiary Records: Controlling accounts and
subsidiary records reveal summary of detailed materials costs at each stage of
material receipt and consumption from the store room to finished goods.
(xi) Regular
Reports: Regular reports and informations should be provided to the management
in connection with the purchases of materials, issues from stock, inventory
balances, obsolete stock, goods returned to vendors, and spoiled or defective
units.
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