Page 247 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Retail Business Environment

Notes Storage and Handling Loss

Material cost price is inflated to cover normal storage and handling losses, which arise because
of the following reasons:
(a) Units of receipt and units of issue may differ.

Example: Aluminium foil is purchased by weight, but used by square metre.
(b) Natural losses due to evaporation, shrinkage or drying.

(c) Some of the materials may gain or loss due to change in temperature.
In case of such materials, cost per unit is inflated to ensure that such losses are recovered while
the material is issued to production.

For example, if there is a natural loss of 10 percent of a material, which is purchased @ ` 10 per
kg., the unit price for the same will be:
` 10 = 10  1.1 = ` 11.10 per kg.

However, where any abnormal loss occurs, it should be charged to the profit and loss account.

Material Control

A material control system is an integrated package of software and hardware used in stores
operations, and elsewhere, to monitor the quantity, location and status of inventory as well as
the related shipping, receiving, picking and put away processes. The essential requirements of
the system encompass the following:
(i) Classification, codification, standardization and rationalization of all stores into raw
material — classified into standard and nonstandard items, packing materials, components
and assemblies, engineering stores and machine parts, loose tools, laboratory supplies,
inspection materials, etc.
(ii) Determining standard or norm for consumption of stores as well as stockholding at various
levels.
(iii) Use of standard forms and documents.
(iv) Planning of material requirements by reviewing sales plan, position of finished stock and
work-in-process, production plan, stock-status in stores, and expected arrival as per orders
placed.
(v) Continuous updating of stock position with the information available from purchase,
stores, production and dispatch departments.
(vi) Arranging conversion of basic raw materials into components through outsourcing.
Checking of stock by physical verification is an essential feature of material control. In addition,
preparing regular reports to management indicating stock-holding, ordering position,
consumption, critical items, excess storage, slow-moving, non-moving, dormant, surplus and
obsolete stocks (by quantity and value), etc. are the other functions of material control.
The proper choice of material control systems is extremely important. The following facts
describe the important differences that determine the choice of the system that should be used.
1. Perpetual systems are expensive to operate and maintain but if economically justified,
provide the best control parameters.

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