Costing for materials - inventory Flashcards
What must I learn from costing materials?
P
RAPID VI
R - record costs info for materials
A- analyse costs info for materials
P- prepare and interpret inventory records
I- identify and use inventory control methods
D -define various stages of inventory
V - value inventory and issues to production
I - identify the correct costs accounting journals
different types of inventory
What one the ways of classifying costs and what is an example of this way?
- Element
- materials
What are materials?
- Costing term
- items purchased by organisation
Who is responsible for purchasing materials ?
Purchasing department
What is the role of the purchasing department? - P38
- Lowest possible cost
- no compromisation on quality
- available when needed
- no high storage
Purchasing materials
Why does material purchasing need to be carefully planned and controlled? - P38
- shortage of materials = affect production and sales
- surplus materials = increased storage costs
- surplus materials = obsolescence and deterioration
- surplus materials = interests on money owed
What is the usual systems from stores to control the purchase of materials?
- stores department > purchasing department > supplier > stores department > accounts department
What would the method of planning and controlling materials depend on ? P39
- Size
- Resources
- Needs of a particular organisation
Once the the organisation has what it needs, what is the key to keep planning and controlling materials ? - P40
- any type of material available - at any point in time
- manual/ computerised - records receipts and issues of materials
- phyiscla count
When to re-order and what quantity oto order
How are materials coded and tracked?
- Unique code number
What are the methods available for purchasing and controlling inventory?
- PET JP
- P - Periodic review system
- E - estimation
- T - Two- bin system
- J - Just in time
- P - Perpetual/ continuous inventory - taking
What is the estimation method of purchasing/ controlling inventory?
- imprecise
- only quantities and types very low
- timing and quantity - estimated
What is the two-bin system?
- Two bin system
- Bin A empty - order placed - materials drawn from Bin B
- Bin B - demand during order fullfiment (Bin A) + minimum acceptable inventory
What is the periodic review system?
- fixed intervals
- predetermined level
What is the just in time method ? P40
- latest possible time - no high levels of inventory
Why is the just in time method a risky strategy ? - P40
- exactly the point needed
- correct quantities - correct place - just time for use
What are the benefits for using the just in time method? P41
PS CAP
* P - Productivity improved
* Scrap & wastage is lower
* Cost of holding inventory reduced
* Accounting transactions will lower
* pricde reductions - materials
What can formulas be used for ? P41
- identify reordered:
- minismise costs of ordering and storage
- ensure materials needed for production
What is the reorder level? - P41
- Fixed quantities
- e.g always 20,000 litres
Point at which - next order placed
What pieces of information would the company need for the reorder level to work efficiently?
- Lead time
- reorder quantity
- minimum inventroy level
- maximum inventory level
- reorder level
What is the lead time ? - P41
- Time between : placing order and receiving it
What is the reorder quantity ? P41
- quantity of material
What is the minimum inventory level? P41
- lowest quantity - unexpected emergenices - not below
- buffer inventory
What is the minimum inventory level?
- lowest quantity - unexpected emergenices - not below
- buffer inventory
What is the maximum inventory level ? P41
- highest quantity - at any one time
- set - physicla storage & capacity available
What is the reorder level ? P41
- point - next order inventory placed
What should happen under the reorder level system? P42
- order of material received
- minimum level of inventory reached
What would the reorder level be calculated as? - p42
- (maximum usuage * maximum lead time) + minimum inventory level
How is the order quantity and how is it calculated? P42
- maximum inventoru level - minimum inventory level
What should happen within the reorder quantity once the order has been received ? - P42
Minimum level > maximum level
How does an organisation set the minimum and maximum levels ? - P42
- maximum inventory level = minimum inventory levle + reorder quantity
- Minimum inventory level = reorder level - (average usuage x averaqge lead time)
What is the key factor to having an efficient inventory system ? P43
reorder quantit
What are the two main categories of cost involved in holding inventory? P43
- holding costs
- ordering costs
What can holding costs and ordering costs be ?
Fixed/ variable