Page 80 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes ‘S’indicates slow moving items, existing stock of which would last for two years or more at the
current rate of usage but it is still expected to be used up. Slow moving stock must be reviewed
very carefully before any replenishment orders are placed.
‘D’stands for dead stock and for its existing stock no further demand can before seen. Dead stock
figures in the inventory represents money spent that cannot be realized but it occupies useful
space. Hence, once such items are identified, efforts must be made to find all alternative uses for
it. Otherwise, it must be disposed off.

VEd Analysis

This analysis divides items into three categories in the descending order of their criticality as
follows:
‘V’ stands for vital items and their stock analysis requires more attention. The reason is that if
these items are not available, the resulting stock outs will cause heavy losses due to stoppage of
production. Thus these items are required to be stored adequately to ensure smooth operation
of the plant.
‘E’ means essential items. Such items are considered essential for efficient running but without
these items, the system will not fail. Care must be taken to see that they are always in stock.
‘D’ stands for desirable items, which do not affect production immediately but availability of
these items will lead to more efficiency and less fatigue.
Thus VED analysis can be very useful to capital intensive process industries. As it analyses items
based on their importance and it can be used for those special raw materials which are difficult
to procure.

ABC & VEd Analysis (Matrix Module: Criticality vs Cost)

It is possible to conduct a two dimensional analysis taking into consideration cost on one hand ,
i.e. A,B,C categories, and VED on the other. Findings of ABC and VED analysis can be coupled
and further grouping can be done to evolve a priority system of management of stores:
Coupling Matrix Model

Cat I Cat II Cat III
V E D
A Av Ae Ad
B Bv Be Bd

C Cv Ce Cd
An example for the coupling matrix model for equipment between criticality and cost
V E d
H Defibrillator X-ray machine Air-curtains
1 2 3
M Ventilator Electric cautery Ultrasonic wash machine
4 5 6
L Oxygen regulator patient trolley Electronic Bp machine
7 8 9

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