Materials control
includes physical control of materials and control over the investment in materials.
Effective physical control of materials
1) Involves limiting the access to stored materials 2) segregating the duties of employees who handle materials and materials reports 3) establishing an accurate recording system for materials purchases and issues 4) Only authorized personnel should be permitted in material storage areas 5) procedures for moving materials into and out of these areas should be well established
The following functions of materials control should be segregated to minimize opportunities for employee misappropriation:
Purchasing Receiving Storage Use recording
To ensure the accurate recording of purchases and materials issues
a) Inventory records should document the determination of inventory quantities on hand, and b) Cost records should provide the data needed to assign a cost to inventories to be used in the preparation of financial statements.
Order point →
The point at which the predetermined minimum level of inventory is reached, requiring the item to be ordered, is called the Calculating the order point is based on the following:
Usage
—The anticipated rate at which the materials will be used.
Lead time
—The estimated time interval between placing the order and receiving the materials ordered.
Safety stock
The estimated minimum level of inventory needed to protect against stockouts.
The order point can be calculated as follows:
(Expected Daily Usage × Lead Time) + Safety Stock
Economic order quantity (EOQ) →
The optimal quantity of materials to order at one time is the order size that minimizes the total costs of placing orders and of carrying inventory in stock.
**The economic order quantity is the point where total order costs equal total carrying costs, unless there is a provision for safety stock.
Order costs →
include purchasing, receiving and inspection salaries and wages, communication costs, and record keeping.
Carrying costs →
include::: storage and handling interest insurance, and property taxes on inventories; losses due to theft, spoilage, or obsolescence.
Annual order costs decrease when order size increases
while annual carrying costs increase with increases in order size.
Materials control personnel include:
(a) purchasing agent who is responsible for purchasing the materials needed at the most economical price
(b) receiving clerk who is responsible for supervising incoming shipments of material;
(c) storeroom keeper who is responsible for storing and maintaining the goods received
(d) production department supervisor who is responsible for supervising the operations of a particular department and who prepares or approves material requisitions.
purchasing agent
who is responsible for purchasing the materials needed at the most economical price
receiving clerk
who is responsible for supervising incoming shipments of material;
storeroom keeper
who is responsible for storing and maintaining the goods received
Production department supervisor
who is responsible for supervising the operations of a particular department and who prepares or approves material requisitions.
The supporting documents used in the procurement process include:
(a) Purchase requisition
(b) Purchase order
(c) Vendor’s invoice
(d) Receiving report
(e) Debit-credit memorandum
return shipping order.
Purchase requisition →
which is prepared by the storeroom keeper to notify the purchasing agent that additional materials should be ordered
Purchase order →
which is prepared by the purchasing agent describing the materials ordered, stating terms and prices, and fixing the date and method of delivery
Vendor’s invoice→
which the purchasing agent compares to the purchase order to verify description of materials, price, terms of payment, method of shipment, and delivery date
