Material Issue Procedure

4.3 Material Storage

4.4 Store Record 4.5 Inventory Control

4.6 Techniques of Inventory Control

4.7 Summary

4.8 Self Assessment Questions 4.9 Reference Books

4.0

Objectives

After completing this unit, you will be able to:

 Describe the procedure involved in material storage.

 Understand the concept of inventory control and its need and importance.  Understand the various inventory records.

 Understand the various inventory control techniques.

4.1 Introduction

Materials constitute a very significant proportion of total cost of finished product. More than fifty percent of the total cost of the product or job is generally the cost of materials alone, in several industries. Therefore, a control of the cost of the materials is quite essential to meet the objectives of cost control and cost reduction.

This control is exercised beginning from the point the orders are prepared for being placed with suppliers, and ending at the point the materials are effectively utilized in production or are disposed off otherwise. We have acquired a basic knowledge about the materials procurement procedure in previous unit and in this unit we will be study about the material storage, inventory record, inventory control and its various techniques.

4.2 Material Issue Procedure

Issue of material must not be made except under properly authorized requisition slip; usually it is the foreman of a department who has the authority to draw materials from the store. Issue of material must be made on the basis of first in fist out, that is, out of the earliest lot on hand. If care is not exercised in this regard, qualify of earliest lot of material may deteriorate for having been kept for a long period.

Material Requisition Note: It is the voucher of the authority as regards issue of materials for use in the factory or in any of its departments. Where a ‘Materials List’ has been prepared, either the whole of the materials would be withdrawn on its basis or separate materials requisitions would be prepared by the person or department and the material drawn up to the limit specified in the list. The requisition notes are

made out in triplicate. The copies are distributed in the following manner:  To store-keeper

 To cost department

 To department requiring it

If no material list has been prepared, it is desirable that the task of the preparation of material requisition notes be left to the planning department. If there is no planning department,(or although in existence, is unable to undertake this task), the requisition notes should be prepared by the person or department that requires the materials. Usually, a foreman’s authority is enough but, in the case of costly materials, it would be desirable to have such requisition duly approved by some higher authority, like the Superintendent or Works Manager before these are presented to stores.

Performa of Material Requisition Note Material Requisition Note

Work Order No……… No………

Department………. Date………. Item No. Particulars Quantity Rate Amount

Store keeper Workman receiving the material Foreman S.L. clerk

Bill of Material: It is also known as material specification list or simply material list. It is a schedule of standard quantities of materials required for any job or other unit of production. A comprehensive materials list should rigidly lay down the exact description and specification of all material required for a job or other unit of production and also required quantities so that if there is any deviation from the standard list, it can easily be detected. The materials list is prepared by the engineering or planning department in a standard form. The number of copies prepared varies according to the requirement of each business, but four is the minimum number. A copy of it is usually sent to each of the following department:

· To store department

· To cost account department · To production control department · To planning department

The advantages of using “bill of material”, by the above departments may be summed up as follows:- Stores Department:

1. A bill of material serves as an important basis of preparing material purchase requisitions by stores department.

2. It acts as an authorization for issuing total material requirement.

3. The clerical activity is reduced as the stores clerk issues the entire/part or the material requirement to the users if there details of material asked are present in the bill of materials.

Cost Accounts Department:

1. Bill of material is used by Cost account department for preparing an estimate/budget of material cost for the job/process/operation.

2. It may be used as a device for controlling the excess cost material used. This is done after determining material variances and ascertaining the reasons for their occurrence.

Production Control Department:

1. Bill of material may be used by this department for controlling usage of materials.

2. Its usage saves time which otherwise would have been wasted for preparing separate requisitions of materials.

Engineering or Planning Department: As stated earlier this department prepares the materials list in a standard form. A copy of list is sent to stores, cost accounts and production control department.

Proforma of Bill of Materials Bill of Materials

Job No……….. No………

Department authorized………….. Date………..

SI. Code Description Qty. Date of Rate Amount No. No. Issue & Qty. Rs. Rs. Issued

Date Qty.

Authorized by…………... Received by……… Store keeper’s signature……... Cheeked by……….. Cost clerk………

Difference between Bills of Material and Material Requisition Note

Bills of Material Material Requisition Note

It is the document prepared by the drawing office.

It is prepared by the foreman of the consuming department.

It is complete schedule of component parts and raw materials required for a particular job of work order.

It is a document authorizing store-keeper to issue materials to the consuming department.

It often serves the purpose of a stores requisition as it shows the complete schedule or materials required for a particular job i.e. it can replace stores requisition.

It cannot replace a bill of materials.

It can be used for the purpose of quotations.

It is useful in arriving historical cost only.

It helps in keeping a quantitative control on materials drawn through stores requisition.

It shows the material actually drawn from stores.

Transfer of Material (Inter – departmental transfer of materials): The surplus material arising on a job or other units of production may sometime be unsuitable for transfer to stores because of its bulk, heavy weight, brittleness or some such reason. It may, however, be possible to find some alternative use for such materials by transferring it to some other job instead of returning it to the store Room.

It must be stressed that generally transfer of material from one job to another is irregular, if not improper, in so far it is not conducive to correct allocation and control of material cost of jobs or other units of production. It is only in the circumstances envisaged above that such direct transfer should be made, at the time of material transfer a material transfer note should be made in duplicate, the disposition of the copies of this not being are as follows :

 To cost department

 To department making transfer

No copy is required for the store as no entry in the stores records would be called for. The cost department would use its copy for the purpose of making the necessary entries in the cost ledger accounts for the jobs affected.

Proforma of the Material Transfer Note Material transfer note

From Job No.. ……… No. ………

To job No.……….. Date………

Item no. Particulars Rate Amount

Transferred by Received by Job ledger clerk

Return of Material: Sometimes, it is not possible before end to make any precise estimate of the material requirements or units of production. Besides, at times due to some technical or other difficulty, it is not practicable to measure exactly the quantity of material required by a department. In either case, material may have to be issued from stores in bulk, often in excess of the actual quantity required. Where such a conditions exists, it is of the utmost important from the point of view of materials control that any surplus material left over on the completion of a job should be promptly hand over to the storekeeper for safe and proper custody.

Unless this is done, the surplus material may be misappropriated or misapplied to some purpose, other than that for which it was intended. The material cost of the job against which the excess material was originally drawn in that case, would be overstated unless the job is given credit for the surplus arising there on. The surplus material, when it is returned to the store room, should be accompanied by a document known either as a shop credit note of alternatively as a stores debit note. This document should be made out by the department returning the surplus material and it should be in triplicate to be used as follows:

 Store room  Cost department  Department returning it

Proforma of Shop Credit Note Shop Credit Note

Job No. ……… No. ………..

Department………. Date………..

Item No. Particulars Quantity Rate Amount

Store –keeper S.L.clerk Foreman of returning department Activity A:

1. After study of above material issue procedure you think that a systematic issue procedure enhance control over material. Why?