Material Costing Problems with Solutions

1. Explain Material Control?

Answer: Material control is the adoption of proper procedure in the procurement, storage, utilization, and evaluation of material so that costs can be reduced by efficient material management.

It reduces excessive investment in material, continues and uninterrupted supply of material and minimizing material wastage and losses. Effective material control system helps in fixing responsibility.

2. Name of departments involved in the organization of material control?

Answer: The following departments are involved in the organization of material control:

1. Purchase Department.
2. Receiving and Inspection department.
3. Storage Department.
4. Cost Accounts Department.
5. Audit Departments.

3. What is meant by Coficiation of Material?

Answer: Allotment of the code number to the materials for identification of each item is known as confiscation of material.

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4. What is Bin card?

Answer: It is annexed to that rack in which material is stored showing receipt, issue, and balance of material in quantity only.

5. What is Stores Ledger?

Answer: It is prepared by cost accounting department to enter transaction regarding receipt, issue, and balance of material. It records quantity and price both.

6. What is normal wastage of material?

Answer: Wastage of the material due to Its nature or general reasons like evaporation, seasoning or maintenance etc. Is normal wastage.

7. What is abnormal wastage?

Answer: Wastage due to abnormal wastage viz. Due to fire, Earthquake, flood, war etc.

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8. What is ABC analysis for Material Control?

Answer: Goods in the warehouse are classified as A for the material of high value. B for the material of medium value and C for the material of low value.

9. What is Just-in-time(JIT) Purchase?

Answer: In the JIT approach there is no need to keep stock of inventory because next day requirement of stock will be supplied by the supplier in the early morning.

10. What is Economic Order Quantity?

Answer: Economic order quantity is that quantity of purchase order where storage cost and purchase cost both are minimum and considered economic.

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11. What is meant by the Reorder Level? Give formula.

Answer: Reorder level is that level of material at which new order should be placed for the purchase of material so that the stock will be regularly available for production.

 Reorder Stock Level = Maximum Reorder Period x Maximum Usage 

12. Explain the different steps of material purchasing in brief?

Answer:

• Purchase Requisition.
• Selection of supplier.
• Purchase Order.
• Receipt of Materials.
• Inspection of Material.
• Return of damaged or not of the type of ordered goods to the supplier.
• Approval of the Invoice.
• Payment of Material.

13. What do you understand by Two Bin System?

Answer: In this system, two bins are maintained for each type of material. In one bin minimum stock level or reorder level is kept and excess material is kept in the second bin.

When the material of the second Bin exhausted, the material requisition is sent to the purchasing department for order placing. Meanwhile, the material of the first bin is transferred to the second bin and new material will be kept in the first bin.

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14. Explain the Perpetual Inventory System?

Answer: It is a system of records maintained by the controlling department which reflects the physical movement of stocks and their current balance.

A permanent inspection party is appointed for continuous stock-taking of material.

This party regularly physically verify the different items of material, throughout the year and prepare a report termed as stores audit note.

15. Why Weighted average method considered to be scientific? Explain.

Answer: The weighted average method is the scientific method because it will iron out the price fluctuation during a period.

The price charged to the product will not directly affect the rising of price and falling in price as this method will maintain the balance between them.