Accounting for Material Flashcards
The basic objective of cost accounting
cost control
the biggest or the highest proportion of the total cost of production.
material
is a substance (Physics term) that forms part of or composed of a finished product.
material
refers to the commodities supplied to an undertaking for the purpose of consumption in the process of manufacturing or of rendering service
material
One or more items, matters or substances that are either physically transformed into a usable product or that become part or component of that product.
direct material
The cost of such (direct) materials is ___________ to each individual unit of product manufactured.
directly traceable
substances that are essential to carry out a production or manufacturing process, but they don’t physically become a part of the product or a component of it.
indirect material
Cost of the materials used to manufacture a product or provide a service.
material cost
“the cost of commodities supplied to an undertaking”
material cost
Systematic control over purchasing, storing, and consumption of materials
material control
providing the right quantity of material of the right quality at the right time and place at the minimum cost
material cost
techniques of material control (4)
- ABC technique
- VED analysis
- inventory levels
- economic order quantity (EOQ)
divides an inventory into three categories
have a significant impact on overall inventory cost, while also providing a mechanism for identifying different categories of stock
abc technique
categorizes stock under three heads based on its importance and necessity for an organization for production or any of its other activities.
VED analysis
the quantity which must always be maintained in hand.
If stocks are less than the minimum level, then the work will stop due to shortage of materials.
minimum levels
It is the quantity of materials beyond which a firm should not exceed its stocks.
If the quantity exceeds the maximum level limit, then it will be termed as overstocking.
maximum level
It is the level below which stocks should not fall in any case.
danger level
When the quantity of materials reaches a certain level then fresh orders are sent to procure materials again.
re-ordering level
Is the ideal order quantity a company should purchase to minimize inventory costs such as holding costs, shortage costs, and order costs.
economic order quantity
This production-scheduling model was developed in 1913 by
Ford W. Harris
METHODS (4)
- first in, first out
- last in, first out
- simple average cost
- weighted average cost
A method of pricing the issue of material using the purchase price of the oldest unit in the stock.
Under this method materials are issued out of stock in the order in which they were first received into stock.
FIFO
Under this method most recent purchase will be the first to be issued.
The issues are priced out at the most recent batch received and continue to be charged until a new batch received is arrived into stock.
LIFO
Under this method all the materials received are merged into existing stock of materials, their identity being lost.
The simple average price is calculated without any regard to the quantities involved.
simple average cost
It is a perpetual ________ system where the issue price is recalculated every time after each receipt is taking into consideration both the total quantities and total cost while calculating weighted average price.
weighted average cost
