Chapter 11 - Materials

8/3/2019 Chapter 11 - Materials

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Chapter 11

Materials


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Materials

Materials which form

part of the cost ofmaking the product

Materials which cannot

be allocated to a specific

cost of the product Small components on

the cost unit due to their

immaterial value Example: machine

lubricant, screws and

bolts

Direct materials Indirect materials


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Coding

A code is a system of words,

letters, figures, or symbols

used to represent others.

Codes can be alphabetical

and/or numerical.

The length and complexity of

codes depends on the needs

and complexity of the

organisation.


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Documents for buying and selling materials

Prime sources of cost and revenue information


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Purchase requisition

Prepared by the person who wants to buy the

goods, e.g. the storekeeper

Must be countersigned (authorised) by the

supervisor or department head

Then, passed to the

buyer (purchase

department)


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Letter of enquiry

Prepared by the

purchase department tofind the appropriate

suppliers, prices, and

other related details


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Quotation

Customer

Supplier A

Supplier C

Supplier B

Quotation

Catalogue

Price list

/estimate


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Purchase order

Prepared when the appropriate suppliers

have been selected

To ask for the goods to be

suppliedCopies of the order are sent

to: the supplier, the accounts

department. the stores section,

and the goods received section


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Advance note

Prepared by the

supplier to say

when the goods

will be delivered


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Delivery note

Prepared when

goods is delivered

Confirmed by the

driver for the

customer

One copy sent to the

supplier


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Consignment note

Used if the supplier

does not use its own

transport

Provide the same

evidence as the

advice note


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Goods Received Note (GRN)

Prepared and sent toother department to let

them know that the goods

have arrived Copies sent to: the

account department, the

stores section, the buyer,

and the goods received

section


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Invoice

Sent from the suppliers sales department,

detailing the amount that the customer have

to pay


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CUSTOMER SUPPLIER

Step 1

Step 2

Step 3

Step 4

Step 5

Step 6

Step 7

Step 8

Purchase requisition to tell buyer whatis required

Enquiry to suppliersCatalogue, quotation, letter of reply

Select supplier and send purchase order

Advice note of delivery date

Delivery or consignment note to detailgoods delivered and signature on

delivery

Invoice to tell the customer what to pay

Check invoice and make payment


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Documents for recording materials

Help to manage material inventory level after

every transaction occurred

Can be either manual or computerised

Two main types: bin cards and store ledger

account which are both updated from the same

sources: GRNs and MRNs


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Bin card

Be manual records that are written up and

kept in the stores department

Include information about:

Description of inventory recorded

Inventory code

Inventory units

Bin number

Details of movements

Reorder level

Max/Min level


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Store ledger account

Be computerised Record cost details so

that the unit cost and

total cost of each issue

and receipt is shown

The balance after each

movement is shown.

Be kept in the costing

department separate

from the store.


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Free stock

Inventory on hand + Inventory on order

Inventory thathas been scheduled for used


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Material requisitions

Be completed when materials are needed by

the production department

Be sent to the store before materials are

issued

Be used as a source document for

Updating the bin card in stores

Updating the store ledger account

Charging costs to the department or job

that is using the materials


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Materials Returned Note (MRN)

Accompany any unused material back to

stores

Contain the same details as the materials

requisition

Be used as the source document

A reduction from the job original charged

with the material issued


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Stock checking

BIN CARD

STORE LEDGER ACCOUNTS

Check theaccuracy of the

records


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Material Control Cycle

Orders from the storesdepartments using amaterials requisitionnote

Delivers goods

to storesdepartment

Issues goods toproduction department

PURCHASINGDEPARTMENTEXTERNAL SUPPLIER

Production Department

The user of the goods

Stores Department

Requisition goods frompurchasing departmentusing a purchaserequisition


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Accounting for Materials

Direct materials

Materials issued

DEBIT Work in Progress Control AccountCREDIT Materials Control AccountIndirect materials

DEBIT Production overheadCREDIT Materials Control Account


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Accounting for Materials

Direct materials

Materials returned

DEBIT Materials Control AccountCREDIT Work in Progress Control AccountIndirect materials

DEBIT Materials Control AccountCREDIT Production overhead


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Revision


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Question 1

Extract from code list

Telephone expenses 5500-5599

5510 General administration

5530 Sales and marketing

5570 Manufacturing

Telephone numbers and locations

020 7668 9923 Managing director

020 7668 9871 Marketing manager

020 7668 9398 Factory floor

020 7668 9879 Accounting office

0879 6534 Salespersons mobile

Which telephone lines would you charge to code 5510?

A. Sales persons mobile and the marketing manager

B. Managing director and accounts officeC. Factory floor and accounts office

D. Managing director and marketing manager


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Question 1

Extract from code list

Telephone expenses 5500-5599

5510 General administration

5530 Sales and marketing

5570 Manufacturing

Telephone numbers and locations

020 7668 9923 Managing director

020 7668 9871 Marketing manager

020 7668 9398 Factory floor

020 7668 9879 Accounting office

0879 6534 Salespersons mobile

Which telephone lines would you charge to code 5510?

A. Sales persons mobile and the marketing manager

B. Managing director and accounts officeC. Factory floor and accounts office

D. Managing director and marketing manager


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Question 2

You work for the accounts department of AbacusLtd and have received invoice number 1340 from a

supplier for checking. Which documents will you

need to check the details of the invoice to?A. Purchase order and goods received note

B. Goods received note and purchase requisition

C. Delivery note and purchase requisitionD. Advice note and despatch note


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Question 2

You work for the accounts department of AbacusLtd and have received invoice number 1340 from a

supplier for checking. Which documents will you

need to check the details of the invoice to?A. Purchase order and goods received note

B. Goods received note and purchase requisition

C. Delivery note and purchase requisitionD. Advice note and despatch note

Chapter 11 - Materials

Documents

Transcript of Chapter 11 - Materials