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MATERIAL
MAF 220 – COST ACCOUNTING I
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MATERIAL
Are the things needed to produce output/ products
Major part of total cost & is one of the most important assets
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MATERIAL CONTROL
Is a system to ensure that material is purchase at the right quality for the right quantity at the right time & price
Needed to:-› Prevent wastage, production delay &
obsolescene
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MATERIAL CONTROL CYCLE
PRODUCTION DEPT
PURCHASING DEPT
RECEIVING DEPT
INSPECTION DEPT
STORE DEPT
SUPPLIER
MRNPRN
QuotationPurchase
orderInvoiceDelivery
order
GRNIN
MIN
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STOREKEEPING
Handling and keeping records of materials in store
Centralized store = HQ buys n handles material
Decentralized store= BRANCH buys n handles material
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Objectives:› Speedy receipts & issue of materials› Labelling material for identification› Maintain correct level of stock› Efficient use of storage space
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STOCK CONTROL
To maintain optimum level of stock in hand
To control investment in stock Method:
› ABC analysis› Stock levels› EOQ› Stock recording› Stock taking
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ABC analysis
Stocks are analyzed according to their value
Category Type of value Control
A Highest value Maximum
B Medium value Medium
C Lowest value minimum
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STOCK LEVELS
Control & monitoring can be done by using the formulas:› Re-order level› MAX stock level› MIN stock level› R-order qtty› Ave. stock level› Stock turnover ratio
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ECONOMIC ORDER QUANTITY (EOQ)
Enables an org to control investments in materials
Is used to determine how much material should be order
Minimizes the total cost of stock
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EOQ Equation
2DO C
Tabulation› Consists of several order size, where
the min total cost is EOQ Graph
O
C
TC
EOQ
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EOQ = √ 2DO⁄C D= total demandO = ordering costC = carrying cost
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At reorder level, stock will be ‘0’ and when replenished the stock will be the maximum level, Q.
At constant demand, average stock is Q/2.
If the total annual demand is D and the order quantity is Q, then the number of orders for stock in a year will be D/Q.
If the cost per order is O, then the total ordering costs will be D/Q xO
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TOTAL COST = (Q/2)C +(D/Q)O
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You are required to determine the EOQ based on the following data:
Forecasted demand = 2,000 units per month
Ordering cost = RM450.00Unit costs = RM10.00Carrying cost = RM15% per annum
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STOCK RECORDING
Perpetual inventory system› Reflect physical movement of stock & the
balance at all times› Is checked against continuos stock taking
Periodic inventory system› Recording are done by doing stock taking
at a given time
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STOCK VALUATION
To charge to production on a consistent and realistic basis of the cost of materials used and also to provide a satisfactory basis of valuation for inventory on hand
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STOCK VALUATION
3 methods to value stock in hand › LIFO› FIFO› WAM
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FIRST IN FIRST OUT (FIFO)
Materials are used in chronological order
Ensures materials are issued at actual cost
Closing stock valuation is higher
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LAST IN FIRST OUT (LIFO)
The latest materials received are used first.
Ensures materials are issued at actual cost
Lower valuation for closing stock
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Weighted Average
Average price is used Price is calculated by dividing the total
cost of material in stock by the total quantity of material in stock.
A new price needs to be calculated each time new material are received
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Calculate the value of 30 units of material A closing stock using:
a) FIFO methodb) LIFO methodc) Weighted Average method
1 july opening stock 20 units @rm144 july receipts 40 units @rm1514 july receipts 50 units @rm1810 july issues 40 units17 july issues 40 units
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JUST-IN-TIME PURCHASING
Attempts to overcome EOQ. It affects the way purchasing is carried out.
It requires:› The buyer to identify the suppliers› The buyer enter into a contract with the
suppliers to supply materials move frequently› Buyer give a copy of production schedule to
supplier› Supplier carries out quality control› Supplier delivers just in time› Materials used in production immediately
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Reducing waste and increasing efficiency of the material usage
Reduce or eliminate inventories at every stage of production
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Key features:› Smooth, uniform production rate› Pull method of production› Purchase in small lot size› Quick inexpensive setups› High quality of materials› Effective preventive maintenance› Teamwork› Multi skilled workers