Material Cost Control, Scope, Advantages, Principles, Need16/10/2022 0 By indiafreenotes
Material control is the process of systematically controlling materials over the stages of procurement, storage, and usage so as to help maintain the regular and uninterrupted flow of the materials in the production pipeline.
No system of costing is complete without an effective material control system. Material control is a system that ensures the provision of the required quantity of materials of the required quality at the required time with the minimum capital investment.
Materials are all the commodities consumed in the production department to produce items either directly or indirectly. Inventory is a common term used for raw materials, components, work-in-progress, and finished goods stocked in the store.
Materials are also vital for calculating the cost of production. In some cases, materials account for more than 65% of a product’s cost, and so proper control over them is necessary.
An efficient material control system helps to substantially reduce the cost of materials and, in this way, limits the total production cost.
Systematic and effective control over materials also helps to maintain production schedules, meet market demand, and avoid excessive investment in inventories.
A few definition of the term are given as under:
“Material control is a systematic control over purchasing, storing and consumption of materials, so as to maintain a regular and timely supply of materials, at the same time, avoiding overstocking.”
“Material control refers to the management function concerned with acquisition, storage, handling and use of materials so as to minimise wastage and losses, derive maximum economy and establish responsibility for various operations through physical checks, record keeping, accounting and other devices.”
In simple words, material control refers to the various measures adopted to reduce the amount of loss of materials at the time of receiving, storing and issuing the raw materials. Material control in practice is exercised through periodical records and reports relating to purchase, receipt, inspection, storage and issuing direct and indirect materials. Proper control over material can contribute substantially to the efficiency of a business.
Scope of Material Control
- Purchasing or procurement of materials
- Receiving of materials
- Inspection of materials
- Storage of materials
- Issuing of materials
- Maintenance of material records
- Materials or stock audit
Objectives of Material Control
The uninterrupted supply of materials is essential for the smooth flow of production, which is important for the success of any business.
To Provide Required Quality of Materials
The second objective of material control is to ensure the availability of all types of materials of the required quality. If the quality of the materials is low, it will affect product quality. In turn, this will affect the company’s reputation and sales.
To Ensure Uninterrupted Production
The first objective of material control is to ensure smooth production by making available all types of required materials in the required quantity at the right time.
To Control Investment in Stock of Materials
An important aim of material control systems is to minimize the capital investment in the stock of materials.
Materials are purchased and stored before the actual production commences. A large amount of capital may be locked up in materials that may not be required at that time.
Similarly, there may be sometimes be under-investment in materials, leading to interruptions in production due to non-availability of the required quantity of materials.
An efficient material control system helps to ensure the optimal investment of capital in the purchase of materials.
To Minimize Wastage and Loss of Materials
Material control systems also aim to control or minimize all types of wastages and losses of materials that may arise due to carelessness in the storing, issuing, and handling of materials.
Advantages of Material Control System
- Prevents production delays due to lack of materials by ensuring steady supply of required quantities of materials at the right time
- Ensures the production of high-quality products by purchasing high-quality materials
- Eliminates wastage in the use of materials
- Reduces the risk of loss from fraud and theft
- Reduces the cost of storing and issuing materials
- Minimizes capital investment in the stock of materials
- Quickly and accurately assists in valuing materials used in other departments
- Helps to keep perpetual inventory and other records to facilitate the preparation of accurate material reports
Principles of Material Control
To ensure the effective and efficient operation of the material control system, it is important to follow these principles:
- There should be proper coordination among various departments, particularly the production department, purchasing department, inspection department, stores department, and cost department.
- There should be a centralized purchasing set up under the authority of an experienced and competent purchase manager.
- Standard printed forms should be in use for making requisitions, placing orders, receiving materials, inspection of materials, and issue of materials for consumption.
- There should be a proper system for classification, codification, and standardization of materials.
- There should be an efficient arrangement for storing materials to avoid the possibility of deterioration of quality, theft, and wastage.
- There should be an effective system of internal checks covering every aspect, thus ensuring proper control over transactions at every stage. Each transaction relating to materials must be approved by the relevant authority.
- Different stock levels (e.g., maximum level, re-order level, and minimum level) should be fixed for each item of material in the stores.
- There should be a proper system for the valuation of materials issued to production since it strongly influences costing records.
- A perpetual inventory system should be used to ensure that the stocks of various items of material are recorded after each transaction.
- Regular reports should be prepared on the quantity and value of materials received and issued, as well as the balance in hand.
- There should be regular reconciliation of the reports on materials with corresponding accounting records.
Necessity and importance of material control:
In a productive undertaking the need of materials control arises on account of the following reasons:
- For keeping the stock of raw materials within limits in the stores i.e., to avoid overstocking and understocking of raw materials, materials control is significant.
- It ensures proper storage of materials. For the proper preservation and safety of materials, adequate storage facilities are to be provided. With the help of proper storing of materials, quantity of materials as and when required can be issued to various jobs.
- For knowing proper cost of production, control over materials is indispensable.
- Certain techniques and methods are developed under the system of materials control thereby ensuring optimum utilisation of materials.
- In order to undertake continuous checking of materials, the necessity of a proper system of materials control cannot be ignored.
- A well managed system of materials control ensures the availability of different kinds of materials without delay.
As already pointed out while explaining the scope of material management that it includes purchases of materials, storekeeping and inventory control etc.