material costing
TRANSCRIPT
Material Costing
Introduction
Material : Definition
“Goods Purchased for Incorporation into Product for Sale”
Components Of Material Cost• Raw Material cost• Indirect Taxes• Transport, Storage & Delivery
Charges• Quantity Discounts• Trade Discounts• Cash Discounts• Packing & Container Charges
Material Stock Control
“The Systematic Regulation of Stock Level”
• Ordering• Purchase• Receipt• Storage• Issues
15 Commandments of Material Stock Control
• Centralised purchase Function• Material is Purchased with Authority• Proper planning of Purchase Function• Materials Purchased should be of
proper Quality and Specification• Standardisation of Materials• Materials should be properly received
and inspected
15 Commandments of Material Stock Control (Contd.)
• Planned storage of all materials in stores
• Selection of suppliers keeping in view the quality, price, and delivery
• Materials used in production should be charged to production only
• Proper documentation and accounting of materials receipts and issues
• Material issues only with proper authority
15 Commandments of Material Stock Control (Contd.)
• Maintenance of Bin cards and stores ledger and regular reconciliation of both the records
• Fixation of inventory levels• Proper internal checks• Proper procedures in dealing with
shotages and discrepancies
Purchase and Stores Routine
All details of material should be circulated to
• Purchase department• Stores department• Cost Accounts department• Production department
Bill Of Material
Job No. S.I. No.Job Starting Date: Date:Job Finishing Date:
SI No.
Material Code No.
Description
Size/Units
Quantity
Issue Particulars
Date Qty. Rate Amt.
Purchase Requisition Note
“ An Internal Instruction to a Buying office to Purchase Goods or Services. It States their Quantity and Description and Elicits a Purchase Order”
Purchase RequisitionSI No. Date:
Mat.Code
Desp.
Size Qty. Deptt.
Delivery Purchase Order
Date Place No. Rate
Supplier
Purchase Order
“ Tender/Quotations Called By Purchase Department”
Purchase Order
Hero Cycles Ltd. SI No. Purchase Order Date
To, Purchase Order No.-------------------- Supplier Quotation No.-------------------- DatePlease Supply the Following Items on the terms and conditions mentioned below
SI No. Desp. MaterialCode
Size Quantity
Price
Amount
DeliveryDate
Terms of Delivery:Terms of Payment:Special Conditions:
For Hero Cycles Ltd.Purchase Manager
Material Inspection Note
Purchase Order No. Date: Inspection Note No.Material receipt No. Date: Date:
SI No.
Description
StoresCode
Quantity ReasonsFor
Rejection
Inspected
Accepted
Rejected
Goods Received Note (Prepared by Stores department)
Inspection Note No. SI No.Suppliers Name: DatePurchase Order No: Date
SI No.
Description
MaterialCode
Size
Quantity
Price Amount
Date of Entry in Bin Card:Date of Entry in Stores ledger:
Stores Manager
Bin Card: “A Bin Card indicates the level of each particular item of stock at any point of time. It Records all receipts of a particular item of materials and its issues”
Bin No. Maximum LevelMaterial Code No. Minimum LevelMaterial Description Re-Order LevelStores ledger folio No.
Receipts Issues Balance Remarks
Date
GRN No.
Qty. Date
RequisitionNo.
Qty.
Stores Ledger AccountDate Receipts Issues Balance
Qty.Units
RateRs.
ValueRs.
Qty.Units
RateRs.
ValueRs.
Qty.Units
RateRs.
ValueRs.
Pricing Material Issues
Actual Cost Method
“Where Materials are purchased specially for a specific job, Actual cost of the material is charged to that job only. Such material will normally be stored separately and issued only to that particular job”
First In First Out Method (FIFO)“A method of pricing the issues of material
using the purchase price of the oldest unit in the stock”
• More suitable where the size of the material is large and bulky
• Price is high• Can be easily identified in the stores
separately
Class Assignment
At the beginning of October 2007, quality brush company had in stock 10,000 brushes valued at Rs. 10 each.
Further purchases were made during the month as follows.
7th Oct. 4000 Brushes @Rs. 12.50
14th Oct. 6000 Brushes @ Rs. 15.00
24th Oct. 8000 Brushes @ Rs. 16.50
Class Assignment (Contd.)
Issues to shop floor were as follows
16th Oct. 16,000 Brushes28th Oct. 10,000 Brushes
Prepare a Stores Ledger Account using the FIFO method.
Last In First Out (LIFO)
• Under this method most recent purchases will be the first to be issued.
• The issues are priced out at the most recent batch received and continue to be charged until a new batch received is arrived into stock
• It is a method of pricing the issue of material using the purchase price of the latest unit in the stock
Class Assignment
Prepare a stores ledger using LIFO method for the following transactions
Date Particulars
Units Value (Rs.)
124611192227
Balance b/fPurchasedIssuedPurchasedIssuedIssuedPurchasedIssued
300200150200150200200250
600440-460--480-
Simple Average Cost Method
“Under this method all the Materials received are merged into existing stocks of Raw materials, their identity being lost”
• The Simple average price is calculated without any regard to the quantities involved
Weighted Average Cost Method
“It is a perpetual weighted average system where the issue price is recalculated every time after each receipt”
• It takes into consideration both the total quantities and the total cost while calculating weighted average every time.
Thank You
PRESENT BY:BHARAT METHANI