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