Need for Materials Control:
One of the first step in the installation of cost and management accounting system is planning the proper control of materials and supplies from the time orders are placed with supplier until they have been consumed in the plant and office operation or have been sold as merchandise.
Materials represent an important asset and is the largest single item of cost in almost every business; accordingly the success or failure of a concern may depend largely upon efficient material purchasing, storage, accounting, utilization and control.
Where materials are not properly controlled, excess stock of some items are likely to occur with a result unnecessary tying up of capital and loss through deterioration and obsolescence. Shortages of other materials may arise at the time when they are urgently needed and production will then be delayed.
The purchasing of materials is a highly specialized function. By ordering the right quantity and quality of materials at the most favourable price, and by ensuring that it arrives at the right time, the efficient buyer is able to make a valuable contribution to the success of a business. The efficient material control costs out losses and forms of waste that otherwise ten to pass unnoticed. Theft, misappropriation, deterioration, breakage and additional storage costs can be reduced to a minimum by proper controls, and much avoid idle time in the factory will be cut out if materials are available to meet the demands of the production staff. Finally and most important to the cost accountant, it is impossible to produce reliable costing information if the records of materials issue are unsatisfactory, because a cost statement cannot be more accurate than the information on which it is based.
You may also be interested in other articles from “materials and inventory cost control” chapter.
- Need for Materials Control
- Requirements of a System of Materials control
- Stock Control
- Ordering Level or Ordering Point or Re-order Level
- Minimum Level or Minimum Limit
- Maximum Level or Maximum Limit
- Danger Level
- Economic Order Quantity EOQ