Chapter:- 11
Accounting for Materials and Control
1.What is material?
Ans:-Materials are the major element of cost of production which provide physical existence to the final product. It covers major parts (above 70% of total cost) of a product.
2. What do you mean by material control/store control?
Ans:-Material control is a systematic control over the purchasing, storing and using of materials so as to maintain the minimum possible cost of material. The main objective of material control is proper purchase, utilization and movement of materials.
3. Mention any three objective of material control.
Ans:-The following are the three objective of material control:
a. To purchase the required material in economic quantity.
b. To avoid wastage and maximize profitability.
c. To protect the theft, misuse, mishandling etc.
4. Explain the essentials of material control.
Ans:-The following things are essential for the control of material:
a. Proper co-ordination among the departments:-There must be a proper cooperation and coordination among the departments involved in purchasing, receiving and storing will be proper availability of materials for smooth production.
b. Authorized purchase:-The purchase of materials should be made by authorized personnel or department.
c. Perpetual inventory system:-It is possible to determine the quantity and value of each type of material in stock with perpetual inventory system as required.
5. Give the meaning of centralized purchasing?
Asn:-Centralized purchase means that all the purchase activities are routed through only one department.
6. Give the meaning of decentralized purchasing.
Ans:-Decentralized purchasing means that the purchase functions are routed through various departments. In this, Departments are authorized to make their purchases directly and separately from the market.
7. What are the advantages of centralized purchasing?
Ans:-The advantages of centralized purchasing are as under:-
a. Economy of bulk purchase:-Centralized purchasing means bulk purchase and it brings economy in cost of purchase such as lower rate of materials, more trade discount, economy in transport.
b. Expert and talented purchasing staff:-The centralized purchasing department can be staffed with highly paid staff who are experts and talented in the procedure of purchase.
c. Adoption of uniform policies:-Centralized purchasing helps in adopting uniform policies, practice and procedures in purchasing.
d. Economy in compilation of records:-In case of centralized purchasing all purchase records are kept at one place under the supervision of purchase officer. It result in economy and convenience in compilation and consultation of records.
e. Other advantages:-Centralized purchasing generally leads to centralized stores which result is better control over stores, better layout of stores and economy in cost of staff and maintaining the records.
8. Write the disadvantages of centralized purchasing.
Ans:-The disadvantages of centralized purchasing are given below:-
a. Centralized purchasing might lead to delay in material purchase.
b. There is no advantages of local purchase under centralized purchasing.
c. There is high initial cost on material under centralized purchasing due to bulk purchase.
d. It increases the transportation cost of material since the materials are to be dispatched to the departments located.
e. It might lead to misunderstanding among the departments due to their different material requairements.
9. Write the advantages of decentralized purchasing.
Ans:-The advantages of decentralized purchasing are given below:-
a. Under centralized purchasing, purchase can be made quickly, since the departments purchase the materials themselves.
b. The investment in material is low due to the purchase of material in low quantity.
c. This purchasing achieves the advantages of the local purchase.
d. There is no chance to misunderstanding between the departments and units.
e. There is a low possibility of loss and damage of materials.
10. Write the disadvantages of decentralized purchasing.
Ans:-The disadvantages of decentralized purchasing are as under:-
a. In this purchasing, a firm cannot discount, transportation facility, credit facility due to the small quantity of purchase.
b. It is not possible to have specialized service in each department.
c. There is high chance of misappropriations and misuse of material due to ineffective control.
d. It is costly due to separate administrative and accounting works.
11. Differentiate between centralized purchased and decentralized purchase.
Ans:-The difference between centralized and decentralized purchase are as under:-
| S.N. | Centralized Purchasing | Decentralized Purchasing |
| 1. | Control on buying is exercised effectively. | Effective control is not possible. |
| 2 | Skills of the purchasing officer are high. | Purchasing skill is available from the purchaser or purchasing officer. |
| 3 | Purchasing specialization is obtained. | Purchasing specialization is not obtained. |
| 4 | It is easy to regulate purchase policy. | Regulation of purchase policy is difficult. |
| 5 | Advantage of local market cannot be obtained. | Advantage of local market can be enjoyed. |
| 6 | There is a blocking of working capital. | There is no blocking of working capital. |
| 7 | There is a misunderstanding between production center and purchase department. | There is no such misunderstanding since the concerned department purchases the materials. |
12. Write the procedures of material purchase.
Ans:-The procedures of material purchase are mentioned below:
a. Receiving Purchase Requisition
b. Selecting of Suppliers
c. Sending Purchase Order
d. Receiving and Inspecting Materials
e. Verifying and Passing Bills for Payment
13. What is purchase requisition?
Ans:-Purchase requisition is a request made by various departments to the purchase department for purchasing the required materials.
14. What is purchase order?
Ans:-Purchase order is a request made to the supplier to send the materials as per the stated price and quantity.
15. What is store keeping?
Ans:-Store keeping is the process of storing the materials in proper manner after receiving from supplier till the issue to production department. It is the process of inventory management and control. When the materials are received from the supplier as per the purchase order, it requires to keep record in store ledger with material inspection report.
16. What is storekeeper?
Ans:-Store keeper is person appointed for taking care of store. He is in-charge of the store and responsible for the control of store. Storekeeper is also called store manager.
17. Mention any five responsibilities or duties of a Storekeeper.
Ans:-The following are the responsibilities of a storekeeper.
a. To collect materials and verify them in reference to material note.
b. To classify and codify materials in accordance of their nature.
c. To maintain proper record of materials in bin card and store ledger.
d. To providing security against loss, fire and accident.
18. What is Bin card?
Ans:-Bin is a place or rack where materials are stored and the card attached to the bin in known as Bin Card. Bin card shows quantitative details of receipts, issues and balance of materials in the bin.
19. Write in short about the centralized stores.
Ans:-If there is only one store to receive and issue materials to all departments of a firm, such store is called centralized store. In this type of store, all materials are kept at one central store.
20. What do you understand by decentralized stores?
Ans:-If there is separate stores to receive and issue materials to all departments of a firm, such store is called decentralized stores. In other words, this is a system where each department has its own stores.
21. What do you understand by codification of material?
Ans:-The act of determining additional basis for separating various materials from each other belonging to the same group is called codification of materials. For examples, the materials used in a business firm may be classified into raw materials, consumable materials, chemicals, packaging materials, machinery and equipment and other materials.
22. Write the meaning of periodic inventory system.
Ans:-This is a system which determines the quantity of inventory on hand periodically. In a periodic system, the inventory account is not updated every purchase or sale is made. It is updated only at the end of the period.
23. Write the meaning of perpetual inventory system.
Ans:-This is a system which determine the quantity of inventory continuously after every purchase and sales. Under this system all transactions are recorded to the inventory account as they happen.