Page 62 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I Gopika Juneja, Lovely Professional University

Notes Unit 4: Material Control

CONTENTS

Objectives
Introduction
4.1 Meaning and Definition of Material Control
4.2 Methods and Techniques of Material Control
4.3 Material purchase and Storage
4.4 Summary

4.5 Keywords
4.6 Review Questions
4.7 Further Readings

Objectives

After studying this unit, you will be able to:
z z Explain the meaning and definition of material control;
z z Describe the methods and techniques of material control;
z z Understand the material purchase and storage.

Introduction

Material is a very important factor of production in a manufacturing organization. It is the first
and the most important element of cost. Materials account for nearly 50–60 per cent of the cost
of production. This fact can be inferred from an analysis of the financial statements of a large
number of organizations.
The term ‘material’ generally used in manufacturing concerns, refers to raw materials used
for production, sub-assemblies and fabricated parts. The terms ‘materials’ and ‘stores’ are
sometimes used interchangeably. However, both the terms differ. ‘Stores’ is wider in meaning
and comprises many other items besides raw materials, such as tools, equipments, maintenance
and repair items, factory supplies, components, jigs and fixtures. Sometimes, finished goods and
partly finished goods are also included within the scope of this item.
Uninterrupted supply of materials of acceptable quality and in required quantity as and when
required by the production department is a pre-requisite for carrying out production activities
uninterruptedly, because the non-availability of materials will bring the entire production
activities to a standstill. And, the implications of production stoppage are very well known.
Further, the cost of materials forms a major part of total cost of production and sales as it ranges
from 50–60% depending upon the nature of industries. Besides, this element of cost provides
a number of avenues for cost control such as at the time of purchase, during the process of
manufacturing. Hence, greater emphasis is to be laid on the control of material and material cost
as the success of any company depends, to a greater extent, upon the efficient purchase, storage
and usage of materials.

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