Materials Cost Management and Control

Topics: Cost accounting, Inventory, Safety stock Pages: 7 (1580 words) Published: July 14, 2012
BY BUKENYA MOSES Lecturer, Makerere University Business School-MUBS. MSc. Accounting & Finance-Mak BCom-Accounting-Hons, ACCA Level II, Email: or Mobile Phone contact: +256772881525 MUBS EMBA MAC by Moses Bukenya


Students should be able to understand

1. AIM/purpose/objectives of principles of material Materials cost management. 2. Basic management 3. Procurement cycle 4. Relevant control documents 5. Functions of inventory control 6. Inventory control systems 7. Pricing material issues and valuation of closing stock. 8. References/suggested reading list MUBS EMBA MAC by Moses Bukenya

Material Cost MGT & Control
A scientific technique, concerned with Planning, Organizing & Control of flow of materials, from their initial purchase to destination. AIM OF MATERIAL MANAGEMENT is To get 1. The Right quality 2. Right quantity of supplies 3. At the Right time 4. At the Right place 5. For the Right cost MUBS EMBA MAC by Moses Bukenya

PURPOSE OF MATERIAL MANAGEMENT •To gain economy in purchasing •To satisfy the demand during period of replenishment •To carry reserve stock to avoid stock out •To stabilize fluctuations in consumption •To provide reasonable level of client services

MUBS EMBA MAC by Moses Bukenya

Objectives of material management
Secondary Primary
•Right price •High turnover •Low procurement & storage cost •Continuity of supply •Consistency in quality •Good supplier relations •Development of personnel •Good information system •Forecasting •Inter-departmental harmony •Product improvement •Standardization •Make or buy decision •New materials & products •Favorable reciprocal relationships

MUBS EMBA MAC by Moses Bukenya

Basic principles of material management
1. Effective management & supervision depending on managerial functions of • Planning • Organizing • Staffing • Directing • Controlling • Reporting • Budgeting 2. Sound purchasing methods 3. Skillful & hard poised negotiations 4. Effective purchase system 5. Should be simple 6. Must not increase other costs 7. Simple inventory control programme MUBS EMBA MAC by Moses Bukenya

Procurement cycle
• Review selection • Determine needed quantities • Reconcile needs & funds • Choose procurement method • Select suppliers • Specify contract terms • Monitor order status • Receipt & inspection MUBS EMBA MAC by Moses Bukenya

Points to remember while purchasing
•Proper specification •Invite quotations from reputed firms •Comparison of offers based on basic price, freight & insurance, taxes and levies •Quantity & payment discounts •Payment terms •Delivery period, guarantee •Vendor reputation (reliability, technical capabilities, Convenience, Availability, aftersales service, sales assistance) •Short listing for better negotiation terms •Seek order acknowledgement MUBS EMBA MAC by Moses Bukenya

• Store must be of adequate space • Materials must be stored in an appropriate place in a correct way • Group wise & alphabetical arrangement helps in identification & retrieval • First-in, first-out principle to be followed • Monitor expiry date • Follow two bin or double shelf system, to avoid Stock outs • Reserve bin should contain stock that will cover lead time and a small safety stock

Issue & use
Can be centralized or decentralized
MUBS EMBA MAC by Moses Bukenya

Relevant control documents
LPOs Delivery notes Inspection Reports Goods Received Notes- GRNs Goods Returned Notes Payment vouchers Bin cards Ledger cards Etc. MUBS EMBA MAC by Moses Bukenya

Inventory control
It means stocking adequate number and kind of inventory, so that the materials are available whenever required and wherever required. Scientific inventory control results in optimal balance of the; Functions of inventory control •To provide maximum supply service, consistent with maximum efficiency & optimum investment. •To provide cushion between forecasted & actual demand for...
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