Scribd
Upload
84 views

Control and Accounting For Materials

The document discusses materials control and accounting, explaining the importance of physical control over materials through limited access and accurate record keeping, as well as investment control through economic order quantities and order points. It also outlines the basic accounting procedures for materials, such as recording purchases and issues, maintaining materials records, and different cost flow methods.

Uploaded by

Ella Mae Saludo
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
84 views

Control and Accounting For Materials

The document discusses materials control and accounting, explaining the importance of physical control over materials through limited access and accurate record keeping, as well as investment control through economic order quantities and order points. It also outlines the basic accounting procedures for materials, such as recording purchases and issues, maintaining materials records, and different cost flow methods.

Uploaded by

Ella Mae Saludo
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 28

Inspired by our faith in God, by our Catholic traditions, and by the charism

of St. John Baptist De La Salle, educational innovator par excellence, we,


together and by association, are committed to give quality human and
Christian education to all, building a society founded on equity and justice
and on sustainable and inclusive development

Control and Accounting for Materials


Learning
Objectives
Recognize the two basic aspects of materials
control.
Specify internal control for materials.
Account for materials and relate materials
accounting to the general ledger.
Account for inventories in a just-in-time (lean
production) system.
Account for scrap materials, spoiled goods, and
defective work.
A Cost Control System
• The major function of a cost control system is to
keep expenditures within the limits of a
preconceived plan.
• An effective cost control system is designed to
control the actions of people responsible for
expenditures because people control costs.
Costs do not control themselves.
A Cost Control System
• An effective cost control system should include the
following:
1. A specific assignment of duties and
responsibilities.
2. A list of individuals who are authorized to approve
expenditures.
3. An established plan of objectives and goals.
A Cost Control System
4. Regular reports showing the differences between
goals and actual performance.
5. A plan of corrective action designed to prevent
unfavorable variances from recurring.
6. Follow-up procedures for corrective measures.
Materials Control
• The two basic aspects of materials control are :
(1)the physical control or safeguarding of materials
 Limited access
 Segregation of duties
 Accuracy in recording
(2) control over investments in materials
 Order Point
 Economic Order Quantity
Physical Control of Materials

• Limited Access – only authorized personnel


should have access to material storage areas.
• Segregation of duties- segregation of employee
duties to minimize opportunities for
misappropriation of assets.
• Accuracy in recording – accurate recording of the
purchase and issuance of materials.
Investment Control of Materials

• Maintaining the appropriate level of raw materials


is one of the most important objectives of materials
control.
• An inventory of sufficient size and variety for
efficient operations must be maintained.
• Management should consider other working capital
needs in determining inventory levels.
Investment Control of Materials

• Adequate planning and control is required.


• Management must determine:
1. When orders must be placed
2. How many units should be ordered
• Order point must be determined; order point is a
minimum level of inventory that should be determined
for each type of raw material, and inventory records
should indicate how much of each type is on hand.
Investment Control of Materials
• Order point is based on the following data:
1. Usage – the anticipated rate at which the material
will be used.
2. Lead time – the estimated time interval between the
placement of the order an the receipt of the material.
3. Safety Stock - estimated minimum level of inventory
needed to protect against stockouts
Economic Order Quantity (EOQ
• The optimal quantity to order at one time.
• Minimizes the total order and carry costs over a period
of time.
Calculating EOQ

• EOQ = Economic
Order Quantity
• C = Cost of placing
an order EOQ = 2CN
• N = Number of units K
required annually
• K = Annual carrying
cost per unit of
inventory
Materials Control Procedures

• Materials control procedures generally related to


the following functions:
1. Purchase an receipt of materials
2. Storage of materials
3. Requisition and consumption of materials
Materials Control Procedures

• Personnel involved in materials control usually


include
1. Purchasing Agent
2. Receiving Clerk
3. Storeroom Keeper
4. Production Department Supervisor
Control During Procurement

• Documents commonly used in procuring materials


include:
1. Purchase requisitions
2. Purchase Orders
3. Vendor’s invoices
4. Receiving reports
5. Debit-credit memoranda
Control During Procurement
Control During Storage and Issuance

• Materials Requisition
• Returned Materials Report
Accounting for Materials

• A company’s inventory records should show (1)


the quantity of each kind of material on hand and
(2) its cost.
• The materials accounting system must be
integrated with the general ledger.
• Purchases of materials on account are recorded
as a debit to Materials in the general ledger.
Accounting for Materials

• Materials account is a control account that


is supported by a materials ledger.
Flow of materials and costs

• Flow of materials is the order in which materials are


actually issued for use in the factory.
• Flow of costs is the order in which unit costs are
assigned to materials issued.
Costs Flow Methods
• First-In, First Out (FIFO) Method – the materials issued
are assumed to be taken from the oldest materials in
stock.
• Last-In, First Out (LIFO) Method – the materials issued
are assumed to be taken from the most recent
purchase prices.
• Moving Average Method – assumes that the materials
issued at any time are simply withdrawn for a mixed
group of materials.
Interrelationship of Materials Documents and
Accounts
Just-in-Time Materials Control

• In a just-in-time
inventory system
(lean production
system), materials
are delivered to the
factory immediately
prior to their use in
production.
Just-in-Time Materials Control
Just in time and Cost Control
• Throughput time – the time it takes a unit to make it
through the manufacturing system.
• Velocity – speed at which units are produced in the
system.
• Nonvalue-added activities – operations that add costs
but do not add value to the product for its customers,
such as moving, storing, and inspecting the
inventories.
Just in time and Cost Flow
Scrap, Spoiled Goods, and Defective Work
• Scrap materials may result naturally from the production
process.
• Spoiled units have imperfections that cannot be
economically corrected. The loss can be treated as part
of the job or charged to factory overhead.
• Defective work has imperfections that are correctable.
The extra costs are either charged to the job or factory
overhead.
Accounting for Scrap

• If the scrap value is small:


Cash……..XXX
Scrap Revenue XXX
• If the scrap value is relatively high:
Scrap Materials XXX
Scrap Revenue
Cash XXX
Scrap Materials XXX

You might also like