Material Storage

Proper Storing of materials is of primary importance. It is not enough only to purchase material of the required quality. If the purchased material subsequently deteriorates in quality because of bad storage, the loss is even more than what might arise from purchase of bad quality materials. Apart from preservation of quality, the store-keeper also must ensure safe custody of the material. It should be the function of store- keeper that the right quantity of materials always should be available in stock.

4.3.1 Duties of Store Keeper: These can be briefly set out as follows:

1. To exercise general control over all activities in stores department 2. To ensure safe keeping both as to quality and quantity of materials. 3. To maintain proper records

4. To initiate purchase requisition for the replacement of stock of all regular stores items wherever to stock level of any item of store reaches the minimum limit fixed in respect thereof.

5. To initiate action for stoppage of further purchasing when the stock level reaches the maximum limit. 6. To check and receive purchased materials forwarded by the receiving department and to arrange

for the storage in appropriate places.

7. To reserve a particular martial for a specific job when so required.

8. To issue materials only in required quantities against authorized requisition notes/material lists. 9. To check the book balances, with the actual physical stock at frequent intervals by way of internal

control over wrong issues, pilferage, etc.

4.3.2 Minimizing the Cost of Purchasing and Store-Keeping:

There are two types of costs which are involved in making a purchase and keeping the goods in the store: For placing each order, a certain amount of labor is required and, therefore, it will involve a certain sum of money as cost, it is called ordering cost. It should be noted that the cost of making a purchase not only includes the cost incurred by the purchasing department but it also includes the cost of receiving and inspecting the goods. These costs will naturally increase if the number of order is large; there can be saving if the number of orders is reduced.

The other type of cost is concerned with keeping the goods in stock it is called carrying cost or holding cost. It comprised the money invested, the loss which is likely to take place if the goods are kept, the expenses incurred on looking after the items etc. larger the stock, higher will be this type of cost. In order to reduce this cost, it is necessary to bring down level of the stock.

It may be noted that the number of orders can be cut down only, if the quantity of each order is increased, but if that is done, the average quantity of hand will increase and, therefore, interest and the cost of store keeping will be higher. It is necessary, therefore to have balance between those two costs and to keep total of the two at the minimum level. With this objective in view, the Economic Order Quantity is worked out. But different items for stock have to be treated differently. The name given to such classification is the ‘ABC’ Analysis, or the Selective Inventory Control.

4.3.3 Different Classes of Stores: Stores are classified in following three types

 Central or Main Store

 Sub-Store

 Departmental Store

Central Store: The central stores are the most common of all and in practice, factories generally have only a central store under the control of one store keeper. Such a store is centrally situated and is easily accessible to all departments. If receipts and issues of different items of stores are not large, and the various departments are close to each other, one ventral store for all purposes is sufficient.

Sub-Store: In big organizations, particularly in the case of collieries, tea gardeners, etc., where the work spots are distributed over a large area, sub-stores are created. A sub-store is in fact a branch of the central store. It is generally created to facilitate easy accessibility to the various work spots or consumption centers. Only the essential items, as well as those required urgently, are kept in them. The issues to sub-stores are not treated as consumption but only as a transfer, from one store (central) to another sub-store. The control in the matter of ordering or receiving rests with the central stores and the sub-stores do not generally receive any item directly.

Departmental Store: Departmental stores are created normally to minimize the time spent on drawing from stores. For example, a week’s supply may be drawn at one time and kept in a departmental store at a place marked for the purpose. Such stores, however, are essential where one or more production departments work in multiple shifts and the central store works for only one shift; also for the storage of work in progress and semi-finished components where these are large in number or in bulk. Unlike a sub store in the departmental store, the control rests with the department in charge. The materials are generally issued in bulk to the departmental store and it is the responsibility of the department-in-charge to keep proper accounts as regards issues and stock. If the bulk of material is required for only on department, it is usually stored near the department under the charge of the superintendent concerned.

4.3.4 Stores Location:

The location of store should be carefully planned. It should be near to the material receiving department so that transportation charges are minimum. At the same time, it should be easily accessible to all other departments of the factory, railway siding, roads etc. Planned location of the stores department avoids delay in the movement of materials to the departments in which they are needed.

4.3.5 Stores Layout:

The store should be adequately provided with necessary racks, drawers, and other suitable receptacles for storing materials. Each place where materials are kept is called a bin. For example- drawer or rack or a corner. Each bin should be seriously and systematically numbered and for every item a bin allotted, for convenience of access. The number of the bin should be entered in the store ledger concerned accounts. Activity B:

1. Discuss briefly duties of store keeper.

2. Write five industries and classify their store type.

4.4 Store Record

The record of stores may be maintained in three forms:  Bin Cards

 Stock Control Cards  Stores Ledger

The first two forms of accounts are records of quantities received, issued and those in balance, but the third one is an accounts of their cost also. Usually, the accounts are kept in two forms, the quantitative in the store and quantitative-cum-financial in the cost department.

4.4.1 Bin Cards and Stock Control Cards

Both are essentially and mostly similar and contain quantitative records of stores. Stock cards contain further information’s regarding stock on order. Bin cards are kept attached to the bins or receptacles or quite near there to so that these also assist in the identification of stock. The stock control cards, on other hand, are kept in cabinets or trays of loose binders.

Advantages of Bin Cards:

1- There would be fewer chances of mistakes being made as entries will be made at the same time as goods are received or issued by the person actually handling the materials.

2- Control over stock can be more effective, in as much as comparison of the actual quantity in hand at any time with the book balance is possible.

3- Identification of the different items of material is facilitated by reference to the bin card the bin or storage receptacle.

Disadvantages of Bin Cards:

1- Store records are dispersed over a wide area.

2- The cards are liable to be smeared with dirt and grease because of proximity of material and also because of handling materials.

3- People handling materials are not ordinarily suitable for the clerical work involved in writing bin cards.

Advantages of Stock Control Cards:

1- Records are kept in a more compact manner so that reference to them is facilitated.

2- Records can be kept in a neat and clean way by men solely engaged in clerical work so that a division of labour between record keeping and actual material handling is possible.

3- As the records are at one place, it is possible to get an overall idea of the stock position without the necessity of going round the stores.

Disadvantages of Stock Control Cards:

1- On the spot comparison of the physical stock of an item with its book balance is not facilitated. 2- Physical identification of materials in stock may not be as easy as in the case of bin cards, as the

stock control cards are housed in cabinets or trays. 4.4.2 Stores Ledger

A modern stores ledger is a collection of cards or loose leaves specially ruled for maintain a record of both quantity and cost of stores received. Issued and those in stock. It is a subsidiary ledger to the main cost ledger and maintained by the cost accounts department. It is posted from goods received notes and materials requisitions. The advantages of writing up stores ledger mechanically are:

1- It enables distribution of work among a number of clerks due to which receipts and issues are posted quickly and regularly.

2- It enables stock records to be centralized in case of an organization having a number of depots. 3- The accuracy of posting can be mechanically tested more conveniently.

4- The records are clean and neater. Also the recurring cost of maintaining them is much less than those kept manually.

5- If up-to-date records are available, the management will be able to exercise greater control over quantities held in stock from time to time which may result in a great deal of saving in both the amount of investment in stock and their cost.

Now-a-days, mostly a duplicate record of issues and receipt of materials is kept one on bin cards in the store and the second in the stores ledger in the costing department.

Difference between bin card & stores ledger

4.4.3 Treatment of Shortages in Stock Taking

At the time of stock taking generally discrepancies are found between physical stock shown in the bin card and stores ledger. These discrepancies are arising due to shortages and losses. The reasons of these discrepancies may be classified as unavoidable or avoidable.

Bin Card Stores Ledger

It is maintained by the storekeeper in the store

It is maintained in costing department.

It contains only quantitative details of material received, issued and returned to stores.

It contains information both in quantity and cost.

Entries are made when transactions take place.

It is always posted after the transaction.

Each transaction is individually posted. Transactions may be summarized and then posted.

Inter-department transfers do not appear in Bin card.

Material transfers from one job to another job are recorded for costing purposes.

Losses arising from unavoidable causes should be taken care of by setting up a standard percentage of loss based on the study of the past data. The issue prices may be inflated to cover the standard loss percentage. Alternatively, issues may be made at the purchases price but the cost of the loss or shortage may be treated as overheads.

Actual losses should be compared with the standard and excess losses should be analyses to see whether they are due to normal or abnormal reasons. If they are attributable to normal causes, an additional charge to overheads should be made on the basis of the value of materials consumed. If they arise from abnormal causes, they should be charged to the costing profit and loss account.

Avoidable losses are generally treated as abnormal losses. These losses should be debited to the costing profit and loss account.

Losses or surpluses arising from errors in documentation, posting etc., should be corrected through adjustment entries.

Activity C:

1. Discuss advantages and disadvantages of bin card and stock control cards. 2. Discuss treatment of shortages in stock taking.