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Need for Materials Cost Control:
One of
the first step in the installation of cost
Accounting system is planning the proper control
of materials and supplies from the time orders
are placed with supplier until they have been
consumed in the plant and office operation or
have been sold as merchandise.
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Requirements for a System of Materials Control:
The important requirements or essentials of
adequate satisfactory system of materials are:
proper coordination, competent purchasing agent, use
of standard forms etc..
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Stock Control:
The
materials purchased by a concern may be classified
as stock items which are taken into store and held
until required, or as direct deliveries to the point
of consumption. The control of those materials which
are stock items is known as stock control.
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reading.
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Reorder Level:
This is that level of materials at which a new order for
supply of materials is to be placed. In other words, at
this level a purchase requisition is made out. This
level is fixed somewhere between maximum and minimum
levels. Order points are based on usage during time
necessary to requisition order, and receive materials,
plus an allowance for protection against stock out.
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reading.
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Minimum
Level or Minimum Limit:
The minimum
level or minimum stock is that level of stock below
which stock should not be allowed to fall. In case of
any item falling below this level, there is danger of
stopping of production and, therefore, the management
should give top priority to the acquisition of new
supplies.
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Maximum
Level or Maximum Limit:
The maximum
stock limit is upper level of the inventory and the
quantity that must not be exceeded without specific
authority from management. In other words, the maximum stock
level is that quantity of material above which the stock of
any item should not normally be allowed to go.
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continue reading.
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Danger Level of Materials
or Inventory:
Some enterprise
also calculate danger level. When this level of stock
is reached, then emergency steps are taken by the management
to acquire material supplies.
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Economic Order Quantity (EOQ):
Economic order quantity (EOQ) is that size of the order which
gives maximum economy in purchasing any material and ultimately
contributes towards maintaining the materials at the optimum
level and at the minimum cost.
