2.

0
MATERIALS

DEFINITION OF MATERIALS
Are

supplies purchased from outside sources and which are used to manufacture product for sale to the customers.
Materials

must be order, receive, store, issue and control continuously.

Some

of organizations assume that the material cost is very important in order to reduce the cost and increase the profit of the company.
Need

to be control and maintain wisely in order to prevent any shortage in the production line.
The

companies should select the best vendors or suppliers in getting the high-quality of materials for the company.

Types of Material

Direct Material

-Direct

material is a material that can be traced into the production. It is more related to the material that used to produce the products. For example: paper, wood, flour and etc.

Indirect Material

- Indirect material is material that cannot be traced as part of the product. For example: nails, baking powder, and etc.

MATERIAL PURCHASING PROCEDURES

Sources

of demand Request for material on purchase requisition Selection of supplier Deliver of purchase order to supplier Receipt of goods and invoice by receiving department Material checked and inspected and prepare goods received notes Materials and goods received notes sent to the store Materials checked against goods received note by storekeeper Invoice checked by purchasing department against purchase order Invoice sent by buyer and to the account department Payment made by accounts department.

DOCUMENT INVOLVED FOR MATERIAL PURCHASING

PROCEDURE REFER TO THE ATTACHMENT

8.30

STORES CONTROL
It

begins from the moment materials are received by the storekeeper. An efficient storekeeping is essential to ensure:
1.

2. 3.

4.

5. 6.

Too much stock will increase the capital and would lead to the increase cost of storage. Too little stock would lead to insufficient stock Materials can be protected against pilferage or deterioration as this may result in loses Materials can be received and issued speedily so that production is not held up Materials can be located speedily Materials can be identified speedily

METHODS IN MAINTAINING STORES CONTROL

1.
2. 3.

4.
5. 6.

Economic order quantity (EOQ) Stock levels ABC Techniques JIT Techniques Stock Turnover Stock Taking

PRICING THE ISSUES OF MATERIALS

1.

First In First Out (FIFO) the earliest materials purchased are used first until exhausted. The stock is valued at cost. Last In First Out (LIFO) the latest materials are used first or issued first. Stock is valued at cost but may be valued at outdated prices. Weighted Average the average price is used. The price is calculated by dividing the total cost of materials in the stock from which the material to be priced could be drawn, by the total quantity materials in that stock

2.

1.

Storekeeping

the material control does not guarantee complete safety for the stocks in the company. The cost of handling the material is the major cost to manage the material. The company should be able to apply the proper control and guard systems in order to keep the material as well.

Function 1.

for storekeeper

To ensure the optimal stock in the warehouse are properly maintained. Make material requisition Accept the deliveries of materials Keep the material in the store with secure and safe Issue materials to other departments

2. 3. 4. 5.

Objectives for storekeeping

1.

Speedy in the receipt and issue of materials process Immediate and exact location The information for the quantities held Provide the better place to store the material in order to avoid any damage and obsolete stock. Effective and efficient use of storage space.

2. 3. 4.

5.

Stock control

Objective: to discover and maintain the optimum level of investment in all types of inventories from raw materials to supplies of finished goods. It is involved: Systems Perpetual (periodic) inventory system VS continuous stocktaking system.

1. 2.

STOCK INVESTMENT AND CONTROL

Controlling

the stock become so important in the firm investment by implementing the recording and monitoring the stock levels, forecasting the future demands and making an effective decision that related to the stock requisition.
The

main objective to control the stock is to minimize the cost that associated with the stock on the company.
There

are few methods of maintaining stores control such

as:
i. ii.

STOCK LEVELS
EOQ

STOCK LEVEL
This is a stock system that can determine the level of re order for the maximum and minimum quantity of stock in the store or warehouse department.
It

is also will depends on the: Re order level Minimum stock level Maximum stock level

i. ii. iii.

ECONOMIC ORDER QUANTITY

EOQ is the most economic quantity to order that able to minimize the total cost that associated with the stock.

It

can be determined and calculated based on these methods:

i. ii. iii.

Tabulation method

Equation method
Graphical method