5. Accounting for materials

Question 1

What are the stages of the inventory control cycle? (5)

Answer 1

1. Production to stores: orders from stores using a goods requisition note.
2. Stores to purchasing department: Requisition goods from purchasing department using a purchase requisition.
3. Purchasing department to supplier: Order goods using a purchasing order
4. External supplier to stores: Delivers goods to stores department and submits a purchase order
5. Stores to production: Issues goods to production department.

Question 2

What are the costs of carrying inventory? (5)

Answer 2

1. Opportunity cost: cash is tied up in stock – cannot be used elsewhere in the business
2. Insurance
3. Deterioration
4. Obsolescence
5. Stores labour costs

Question 3

What are the stock out costs? (4)

Answer 3

1. Lost sales
2. Reputation damage
3. Production stoppages
4. Emergency orders (£££)

Question 4

What is the formula for re-order levels?

Answer 4

(maximum usage x maximum lead time) + buffer inventory