Question
Materials constitute a significant part of the manufacturing costs of an organization and therefore it is essential that proper control and accounting procedures be exercised in all aspects of the materials control system in the area of:
- Initial ordering and purchase
- Inspection of materials
- Storage
- Stock control
- Stock valuation of materials issued from stores to production
- Physical stock-taking
In relation to the above 6 integrated areas of material control system, you are required to explain the purposes, procedures & related documentations required so that materials purchased is the most suitable for the intended purpose of usage and cost-effectiveness.
25 marks is allocated for this question.
Explanation / Answer
Material control system in the area of : 1. Initial ordering and purchase: We need raw material to manufacturing the goods. So initially we are ordering some quantity of raw material and purchases it. 2.Inspection of raw materials: We examined the raw materials whether it is good or bad, to manufacture the goods. 3.Storage: Storage is needed to store the raw materials until the issues for production. 4. Stock control: We maintain stock registers for storage stock. How much quantity of raw materials in the stores. If stock levels are lower immediately we have to purchase the raw materials and store it. 5.Stock valuation of materials issued from stores to production: Whenever issuing stocks from stores to production, we have to calculate the how much amount of stock issued for production. Physical stock -taking: This is also one type of stock valuation. We are using various methods to issue stocks for production. FIFO,LIFO,Weighted Average method.,