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Home Materials and Inventory Cost Control Requirements for a System of Materials Control
 
 

Requirements for a System of Materials Control:

The important requirements or essentials of adequate satisfactory system of materials control are as follows:

  1. Proper Coordination
  2. Competent Purchasing Agent
  3. Use of Standard Forms
  4. Control by Budgeting Materials and Equipment
  5. Storage Location
  6. Operation of Perpetual Inventory
  7. Standards or Level to be Fixed
  8. Storage Control and Issue
  9. Internal Check
  10. Development of Controlling Accounts and Subsidiary Records
  11. Regular Reports

Proper Coordination:

Proper coordination of all departments involved, in material purchasing, receiving, testing, approving, storage, issue and accounting is essential.

Competent Purchasing Agent:

Centralization of purchasing in a purchasing department under the direct and authority of a competent trained purchasing agent is also considered essential.

Use of Standard Forms:

The use of standard forms for orders, requisition etc., upon which written and signed instructions are given are essential for proper control of materials.

Control by Budgeting Materials 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 materials.

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.

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 materials in stock. It  also enables the comparison of book inventory with the result of physical counting.

Standards or Level to be Fixed:

A minimum quantity of each item of materials, 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 quantity may be determined.

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.

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.

Development of Controlling Accounts and Subsidiary Records:

Controlling accounts and subsidiary records reveal  summary of detailed materials costs at each stage of materials receipt and consumption from the storeroom to finished goods.

Regular Reports:

Regular reports and information should be provided for the management in connection with the purchase of materials, issues from stock, inventory balances, obsolete stock, goods returned to vendors, and spoiled of defective units.

Relevant Articles:

Need for Materials Cost Control
Requirements for a System of Materials Control
Stock Control
Reorder Level
Minimum Level or Minimum Limit
Maximum Level or Maximum Limit
Danger Level of Materials or Inventory
Economic Order Quantity (EOQ)

 

 

A D V E R T I S E M E N T

 

Financial Accounting Topics


  Introduction to Accounting
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  Transactions and Accounting Equation
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  Analysis of Business Transactions
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  Journal, Ledger and Trial Balance
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  Accounting for Bills of Exchange
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  Special Journals
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  Cash Book
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Bank Reconciliation Statement
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  Final Accounts
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  Work Sheet
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  Capital and Revenue Items
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  Valuation of Inventories
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  Accounts of Non-profit Making Organizations
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  Statement of Cash Flows
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  Accounting Ratios Analysis
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  Depreciation, Provisions and Reserves
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  Accounting Dictionary
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  Financial Calculators
 
 
 
Managerial Accounting Topics

  Financial Statements
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  Cost Volume Profit Relationship
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  Variable Costing System
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  Materials and Inventory Cost Control
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  Activity Based Costing System
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  Standard Costing and Variance Analysis
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  Balanced Scorecard
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  Capital Investment Analysis/Capital Budgeting
 

 

 

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