Page 45 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes 3.1 Meaning and Definition of Material Control
The success of any industry or enterprise depends, to a greater extent, upon the successful control
of material. Further, this input provides a number of avenues and wide scope for improvement of
overall performance of the industry. Inventory control, therefore, aims at ensuring the availability
of required quality material in required quantity, at required time or period and place with
minimum cost. Inventory involves investment of money and locking up of precious space which
has alternate uses. It is said that inventory is a necessary evil. As a result, proper control has to

be exercised over it. In controlling inventory, firms or industries use a number of techniques and
models. Inventory control is generally exercised over raw materials and work in progress. The
basic purpose of inventory control is to maintain optimum level of inventory.
The objectives of material control are as follows:

1. Proper estimation of inventory requirements-quantity, quality, specifications of inventory,
etc. This will help the purchase manager to quality and quantity of materials. The purchase
department has to exercise utmost care to procure the quality materials at lower prices.
2. The stores department has also an effective role to play for stock levels. By keeping only the
required quantities of materials, excess employment of capital on materials can be avoided.
Further, it can reduce the loss of materials during the storage period and keep the materials
in good condition.
3. It is the production departments which are capable of extracting the maximum output
from each unit of materials thereby contributing heavily to minimize the loss of materials
during the production period and to maximize the productivity.

Self Assessment

Fill in the blanks:

1. The basic purpose of inventory control is to maintain ...................... .
2. Inventory control is generally exercised over raw materials and ...................... .
3. The purchase department has to exercise utmost care to procure the quality materials at
...................... .
4. By keeping only the required quantities of materials, excess employment of ......................
can be avoided.

3.2 Methods and Techniques of Material Control

There are many methods and techniques of material control, the most important being:

3.2.1 Economic Ordering Quantity

The ordering of materials is usually tagged with three different components of costs viz:
Acquisition cost of materials
Ordering cost of materials and
Carrying cost of materials
The ordering quantity of materials may be either larger or lesser in volume, which carries its own
advantages and disadvantages.

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