Page 77 - DCOM202_COST_ACCOUNTING_I

Unit 4: Material Control

Opening Stock + Closing Stock Notes
(ii) Average Inventory Held =
2
10,000 + 6,000
Therefore, Material A = = ` 8,000
2
12,000 + 16,000
Material B = = ` 14,000
2
Cost of materials consumed
(iii) Inventory Turnover =
Average inventory
` 56,000
Therefore, Material A = = 7 times
` 8,000
` 42,000
Material B = = 3 times
` 14,000
Perpetual Inventory System

The perpetual inventory system is intended as an aid to material control. It is a system of stock
control followed by stores department. The system follows a method of recording stores by which
information about each receipt, issue and current balance of stock is always available.
The Institute of Cost and Management Accountants of England and Wales, defines perpetual
inventory as “A system of records maintained by the controlling department, which reflects the
physical movement of stocks and their current balances.”

According to Weldon, “Perpetual inventory system is a method of recordings stores balances
after every receipt and issue, to facilitate regular checking and obviate closing down of work for
stock-taking.”

Thus, it is a system of ascertaining current balance after recording every receipt and issue of
materials through stock records. An important point which should be kept in mind is that the
perpetual inventory is usually checked by a programme of continuous stock-taking. Perpetual
inventory means the system of it cords whereas continuous stock-taking means the physical
checking of those records with actual stocks.

perpetual inventory system comprises:
1. Comparison of Bin Cards (quantitative perpetual inventory) and Stores Ledger Accounts
(quantitative-cum-valued perpetual inventory),

2. Continuous Stock-Taking (Physical perpetual inventory)
1. Comparison of Bind Cards and Stores Ledger Account: Bin card is maintained by the store-
keeper and stores ledger account is maintained by stores accountant. Each item of stores is
recorded at these places simultaneously. Normally the balances shown by the two records
tally. However, there may arise some differences between these two records due to the
following reasons:
(a) Omission of an item of store in bin card or stores ledger account.
(b) Wrong posting of an item of store either in bin card or in stores ledger account.
(c) Arithmetical error in working out their balances. Therefore, the balances of the two
records should be reconciled at frequent intervals and correct balances should be
drawn.
2. Physical Stock Verification: The perpetual inventory system is not complete without a
systematic procedure for physical verification of stores. The correctness of balances as

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