CHAPTER 3 Flashcards
PURCHASE REQUISITION FORM
It is a document sent to the purchasing department and usually that originates from storeroom staff, materials record clerk, a research engineering, or other department employee or supervisor who needs materials.
Example: A purchase requisition form is submitted by the engineering department to request raw materials for a new project.
PURCHASE ORDER
It is an authorization signed by the purchasing agent sent to a vendor (supplier) to supply goods at the agreed price, specification, terms and conditions of the product and at a specified time and place of delivery.
Example: The purchasing department issues a purchase order to a supplier for the delivery of 100 units of a specific product.
RECEIVING REPORT
It is a document prepared by the receiving department that shows the purchase order number, the account number to be charged, the name of the vendor (supplier), and details relating to transportation, and the quantity and type of goods received.
MATERIAL REQUISITION FORM
It is a document authorizing the material storekeeper to deliver materials to the department presenting the requisition form.
BILL OF MATERIALS
It is a list of materials needed to produce a product.
RETURN MATERIALS REPORT
It is a document prepared when some materials requisitioned were not used in the production and are returned to the material storeroom staff.
DEBIT OR CREDIT MEMORANDUM
It is a document prepared when the type, quantity, quality of goods ordered differs from the goods shipped by the suppliers and an adjustment must be made to the supplier’s invoice.
PROCUREMENT
Means the acquisition of goods and/or services at its best possible costs (minimized cost), in the right quality, quantity, at the right time in the right place from the right source (supplier).
MATERIAL CONTROL SYSTEM
Is defined as a systematic control over purchasing, handling, storing and use of materials to minimize wastes, loss of materials from the time it is received, stored and issued, and operational inefficiencies.
ORDER CYCLING METHOD
Materials on hand are reviewed on a periodic cycle and orders are placed to maintain the desired level of inventory.
ABC ANALYSIS
This method is used by the company that has products with different sizes and values.
TWO-BIN SYSTEM
This method divides the materials into two bins: one bin is used for normal operation and the other bin is used for backup purpose only.
MINIMUM-MAXIMUM SYSTEM
It is the simplest method to manage inventory. The company will only set the minimum and maximum level of inventory on hand.
AUTOMATIC ORDER SYSTEM
An order is placed automatically when the level of inventory reaches the predetermined order point. It is used by the companies that have a computerized system.
PHYSICAL AND OPERATIONAL ASPECT
This deals with the safeguarding of materials from receiving, handling, storing, and its issuance to the production department, recording and its eventual sale to customers.
CONTROL OF INVESTMENT IN MATERIALS
The executive department is focused on the amount of money invested in materials.
MATERIAL PLANNING
Focuses on two important factors which are the quantity of materials to be purchased and the timing of its purchase.
ORDER POINT
Helps the company to minimize the amount of investment in its materials inventory.
USAGE
It refers to the quantity of materials used each day.
LEAD TIME
It refers to the estimated time in days to place an order of materials up to its receipt.
SAFETY STOCK
It refers to the estimated quantity of materials maintained to avoid running out of stock (stockout). It is also known as buffer stock.
ECONOMIC ORDER QUANTITY (EOQ)
It is an equation which determines the optimum purchase order of inventory at a minimized total cost.
ORDERING COSTS
Are costs that are incurred in having an additional inventory.
CARRYING COSTS
Are costs that are incurred in maintaining the inventory.
PERIODIC INVENTORY SYSTEM
This system does not keep a real-time record of inventory in stock or goods sold to customers. The company will do a periodic physical inventory count of goods on hand from time to time.
PERPETUAL INVENTORY SYSTEM
This system continuously updates the balance of its inventory by maintaining an inventory ledger card (stock cards).
NET REALIZABLE VALUE
Is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated cost necessary to make the sale.
CONSIGNMENT
Is a way of selling goods in which the owner called the consignor transfers the goods to the consignee (who sells the goods) for a commission or a fee.
TRADE DISCOUNTS
Are deducted from the list price or catalog price in order to arrive at the invoice price.
CASH DISCOUNTS
Are deducted from the invoice price when payment is made within the discount period.
FIFO (FIRST-IN, FIRST-OUT) METHOD
Under this method, the materials first purchased should be the first to be issued to production.
WEIGHTED AVERAGE METHOD
Under this method, the average unit price is computed each time a purchase of material is made and the new unit price is used to determine the cost of materials issued until another purchase of the material is made and a new unit price is computed.
LIFO (LAST-IN, FIRST-OUT) METHOD
Under this method, the materials last purchased should be the first to be issued to production.
SPECIFIC IDENTIFICATION METHOD
Under this method, specific costs are attributed to identified items of inventories issued to production.
