Material

MATERIALS

👉Material is the most important element of cost. 

👉In many manufacturing concerns, material cost constitutes nearly 50 to 70 per cent of the total cost of manufacturing.

👉 proper planning and control of materials is quite essential.

Classification of Materials

Direct materials: 

Direct materials are those materials which are directly entering into production and become a finished product. 

Direct materials can be easily identified in the product and can be directly charged to product, job, or process

Indirect materials: 

Indirect materials are those materials which cannot be directly charged to

product, job, or process

Material control simply refers to control over materials. 

Material control may be defined as "a system which ensures the provision of the right quantity of materials of the right quality, at the right time and place at the minimum cost". 

It is a systematic control over the procurement, storage, and usage of materials so as to maintain an even flow of materials and to avoid excessive investment in inventories

Centralised Purchasing (Centralised Buying)

In a large concern usually there will be a separate department called purchase department to purchase materials.

 The purchase department will purchase materials for the entire organisation.

 This is called centralised purchasing. Thus, centralised purchasing means purchasing for the whole organisation by a single purchase department.

Purchase Procedure (Purchase Control)

The purchase procedure may differ from firm to firm. However, the basic steps (purchase routine) in purchasing materials are common. These are as follows:

1. Receiving purchase requisition

2. Inviting quotations and tender

3. Selecting the supplier

4. Placing purchase order

5. Receiving of materials

6. Inspection of materials

7. Checking the invoice and making payment

ABC ANALYSIS

ABC Analysis (Always Better Control or Alphabetic Control)

📌ABC analysis all materials are classified into three categories - A, B and C according to value

Category A

 includes high value materials (costlier materials).

 Category B

 includes medium or moderate value of materials (neither expensive nor cheap). 

Category C

 includes lower value materials (least costly materialratio

 According to this technique a greater or strict control is exercised over Category A materials, a moderate control is exercised over Category B materials and relatively lesser degree of control over Category C materials

Advantages of ABC Analysis

The advantages of ABC analysis are as follows:

1. It ensures an effective control over costlier items in which large amount of capital is invested.

2. It helps to use working capital in a better way.

3. It leads to reduction in storage costs.

4. It reduces clerical costs.

5. Investment in materials can be regulated.

6. It helps to maintain high stock turnover ratio

VED ANALYSIS

 inventories are classified into Vital, Essential and Desirable. 

Vital items are those which are very critical for production. If these are out of stock, it will lead to immediate production stoppage and heavy production loss. 

Essential items are those which are very important. They are essential, but their absence (for few days) would not do much harm in production. If they are out of stock for a long period, production will stop. 

Desirable items are those which are required for production, but factory can manage without them for some time, say, a week or even more because they have some 

substitutes. While exercising control, greater attention should be paid on vital items