Page 44 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Manpreet Kaur, Lovely Professional University Unit 3: Material Control

Unit 3: Material Control Notes

CONTENTS

Objectives
Introduction
3.1 Meaning and Definition of Material Control

3.2 Methods and Techniques of Material Control
3.2.1 Economic Ordering Quantity

3.2.2 ABC Analysis
3.3 Pricing of Material Issues
3.3.1 First in First out (FIFO)
3.3.2 Last in First out (LIFO)

3.3.3 Highest in First out (HIFO)
3.3.4 Method of Average
3.4 Summary
3.5 Keywords
3.6 Review Questions

3.7 Further Readings

Objectives

After studying this unit, you will be able to:

Explain the meaning and definition of material control
Describe the methods and techniques of material control
Illustrate the pricing of material issues
Introduction

Material is a very important factor of production in a manufacturing organization. It is the fi rst
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.
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.

LOVELY PROFESSIONAL UNIVERSITY 39