Material control is the system that ensures the provision of the required quantity of material of the required quality at the required time with the minimum of capital investment. It covers the following functions:
(i) Stock control
(ii) Scheduling of requirements
(iii) Purchasing
(iv) Receiving and inspecting
(v) Storing and issuing.
Need for Material Control:
One of the first steps in the installation of a cost system is planning the proper control of materials and supplies from the time orders are placed with supplier until they have been consumed in plant and office operation or have been sold as merchandise. Material represents an important asset and is the largest single item of cost in almost every business; accordingly, the success or failure of a concern may depend largely upon efficient material purchasing, storage, accounting, utilisation and control.
Where materials are not properly controlled, excess stock of some items are likely to occur with a result unnecessary tying up of capital and loss through deterioration and obsolescence. Shortages of other materials may arise at the time when they are urgently needed and production will then be delayed.
The purchasing of materials is a highly specialized function. By ordering the right quantity and quality of material at the most favourable price, and by ensuring that it arrives at the right time, the efficient buyer is able to make a valuable contribution to the success of a business.
Efficient material control costs out losses and forms of waste that otherwise tend to pass unnoticed. Theft, misappropriation, deterioration, breakage and additional storage costs can be reduced to a minimum by proper controls, and much avoidable idle time in the factory will be cut out if materials are available to meet the demands of the production staff. Finally, and most important to the cost accountant, it is impossible to produce reliable costing information if the records of material issues are unsatisfactory, because a cost statement cannot be more accurate than the information on which it is based.
Requirements of a System of Material Control
The important requirements or essentials of adequate and satisfactory system of material control are as follows:
(i) Proper co-ordination: Proper co-ordination of all departments involved, in material purchasing, receiving, testing, approving, storage, issue and in accounting, is essential.
(ii) Competent Purchasing agent: Centralisation of purchasing in a purchasing department under the direct and authority of a competent and trained purchasing agent is also considered essential.
(iii) Use of Standard Forms: The use of standard forms for orders, requisitions etc, upon which written and signed instruction are given, are essential for proper control of materials.
(iv) Control by budgeting material and Equipment: Use of materials, supplies and equipment budgets so that the economy in purchasing and use of materials can be realized, is important factor for adequate control of material.
(v) Storage Location: Storage of all materials and supplies should be in a designated location properly safe guarded under supervision and proper planning should be there for storing and issuing of materials.
(vi) Operation of perpetual Inventory: Operation of proper perpetual inventory system should be used so that it is possible to determine at any time the amount and value of each kind of material in stock. It also enables the comparison of book inventory with the results of physical counting.
(vii) Standards or Levels to be fixed: A minimum quantity of each item of material, below which point the inventory is not allowed to drop, and a maximum quantity, above which stock is not carried should be fixed. In the same manner ordering level and Economic Order Quantities may be determined.
(viii) Storage Control and Issue: The proper operation of a system of stores control and issue is introduced so that there will be delivery of materials upon requisitions to departments in the right amount at the time they are needed.
(ix) Internal Check: The operation of internal check should be introduced to ensure that transactions involving materials and equipment are checked by reliable and independent officials.
(x) Development of Controlling Accounts and Subsidiary Records: Controlling accounts and subsidiary records reveal summary of detailed materials costs at each stage of material receipt and consumption from the store room to finished goods.
(xi) Regular Reports: Regular reports and informations should be provided to the management in connection with the purchases of materials, issues from stock, inventory balances, obsolete stock, goods returned to vendors, and spoiled or defective units.
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