.

______________________________________________________________________________

Subject - COST ACCOUNTING

TOPIC- MATERIAL CONTROL CONSTITUTE

SIGNIFICANT PART OF PRODUCT COST

Research Asst. in Management

Rajeev Dutraj

NAME: AMIT SIKHWAL

ROLL NO:02
COURSE: Bcom LLB 4th sem.
 ACKNOWLEDGEMENT

It’s a genuine pleasure to express my deep sense of thanks and gratitude to my COST
ACCOUNTING teacher MR. RAJEEV DUTRAJ ASST.PROF. OF MANAGEMENT. His
declaration and keen interest above all his overwhelming attitude to help his students has been
solely and mainly responsible for the completion of my project, His timely advice, meticulous
scrutiny, approach have helped me to a very great extent to accomplish this task.

I thank profusely all the STAFFS of INDIAN INSTITUTE OF LEGAL STUDIES COLLEGE,
SILIGURI for their kind help and co-operation throughout my study period.

Lastly, I would like to thank all of those who helped me in any way in my project.

TEACHER’S SIGNATURE STUDENTS SIGNATURE

DATE: DATE:
 CHAPTER 1

SYNOPSIS

STATEMENT OF PROBLEM
An In Depth Analysis Of The Advantages And Limitations Of Management Accounting And Its
Impact On Any Organization.
RESEARCH OBJECTIVES
An In Depth Analysis Of The Advantages And Limitations Of Management Accounting And Its
Impact On Any Organization.
RESEARCH QUESTIONS
What are the advantages and disadvantages of management accounting in any organisation
HYPOTHESIS
Management accounting plays a very important role in an organisation
RESEARCH METHOD
Doctrinal method is used in this project
SOURCES OF DATA
Primary:
Book:
COST ACCOUNTING BY S.CHAND
COST ACCOUNTING BY I C JAIN
Secondary:
shodhganga.inflibnet.ac.in/bitstream/10603/148572/8/08_chapter%203.pdf

https://corporatefinanceinstitute.com › Resources › Knowledge › Accounting

www.universityofcalicut.info/SDE/BComCoreCostAccounting.pdf

www.yourarticlelibrary.com/material-management/materials...importance.../53156

https://courses.lumenlearning.com/sac.../the-role-of-standard-costs-in-management/
 CONTENT
CHAPTER CHAPTER NAME PAGE NO:

01 SYNOPSIS 05

02 MEANING OF CONCEPT OF 06
MATERIAL

03 OBJECTIVES OF MATERIAL COST 07

CONTROL

04 ESSENTIAL OF MATERIAL 08
CONTROL SYSTEM

05 TYPRS OF MATERIALS 09-10

 CHAPTER 2

MEANING AND CONCEPT OF MATERIAL

Material cost is one of the important elements of cost of product or unit. It

constitutes a substantial proportion of the total cost of production.

The first element of the cost of the product is raw material. This is ‘’the cost of
commodities supplied to an undertaking.’’ Material form an important part of the
cost of a product and therefore proper control over materials is necessary. The term
‘materials’, generally used in manufacturing concerns, refers to raw material used
for production, sub-assemblies and fabricated parts.’’

Material is an essential element of cost. The entire process of manufacturing would

be disrupted, or even stopped if right type of material is not available in right
quantity at right time

Production of every product requires some form of basic materials. Materials are
therefore, indispensable for every production process. Materials constitute the
substances or the essential parts of which product is made. They may be classified
into three broad categories:

(i) Raw Materials: The term raw materials includes materials which are in
their natural or raw form e.g. cotton for a textile unit, etc.
(ii) Semi-finished Materials: The term semi-finished materials includes
materials which are not completely finished in all respect. In other words,
some processing till remains to be done before the product can be sold.
For instance, a furniture manufacturer may purchase unpolished furniture
from market and may sell it after polishing
(iii) (iii) Finished Materials: The materials comprise finished components
which are used as raw materials for manufacturing a product
 CHAPTER 3

OBJECTIVES OF MATERIAL COST CONTROL

Materials control basically aims at efficient purchasing of materials, their efficient

storing and efficient use or consumption. Materials control consists of controls at
two levels: (i) Quantity controls and (ii) Financial controls.

For instance, the production department in a manufacturing company aims at

quantity controls lesser and lesser units should be used in the production
department. In contrast, the finance manager is interested in keeping the
investments on materials at the lowest point.

The basic objective of effective material control system is to enable management

to place an order at the right time, from the right source and to acquire the right
quantity of the right quality at the right place. To achieve this objective, the
materials management department has to support the objectives of the undertaking
as a whole

Material control is accomplished through functional organization, assignment of

responsibility and documentary evidence obtained in various stages of operations
from the approval of sales and production budgets to the completion of the
products which are ready for sale and shipment.

‘’Material control involves recording on printed forms all steps and movements
which occur in the acquisition and utilization of materials. Effective control also
requires the systematic preparation of periodic summaries and reports.’’

‘’Uncontrolled inventory, the industrial cancer is equally, if not more, dangerous

and that is why inventories are sometimes mid to be the grave-yard of business.’
 CHAPTER 4

ESSENTIALS OF MATERIAL CONTROL SYSTEM

Following are the main essentials of a material control system: ·

There should be a proper co-operation and co-ordination among the departments

dealing with material purchasing, receiving, testing, storing, production planning
and accounting. · There should be a centralized purchasing department. ·

There should be a proper perpetual inventory system, which reflects physical

movement of stocks and their current balance. ·

There should be a good method of classification and codification of materials. ·

There should be a standard forms for requisitions, order, issue, return and transfer
of materials. ·

There should be carefully planned materials storage facilities to avoid losses from
damage, evaporation, pilferage, theft and deterioration.

· Materials and supply should be properly stored.

· Stock of different levels should be fixed to ensure that there is no under and over-
stocking of materials.

· The quantity of each type of materials to be ordered should be fixed to reduce the
ordering and carrying costs.

· There should be an effective system of internal check to ensure that all

transactions relating to materials are automatically checked.
 CHAPTER 5

TYPES OF MATERIALS

Direct materials cost

Direct materials cost the cost of direct materials which can be easily identified
with the unit of production. For example, the cost of glass is a direct materials cost
in light bulb manufacturing.
The manufacture of products or goods required material as the prime element. In
general, these materials are divided into two categories. These categories are direct
materials and indirect materials.
Direct materials are also called productive materials, raw materials, raw stock,
stores and only materials without any descriptive title.

Direct materials cost estimation

Steps to estimate the direct material costs:

1. Find the total amount to be produced. This is usually noted as the order size.
2. Calculate the total amount of raw materials required to produce the order
size.
3. Multiply that amount by the cost associated with the raw materials.
4. If there is a waste or scrap, its cost should be added to the costs in step 3.
5. If the waste or scrap can be sold at salvage value, this value should be
subtracted from the costs in step 4.
 Indirect materials
Indirect materials are materials used in the production process, but which
cannot be linked to a specific product or job. Alternatively, they may be u sed in
such insubstantial quantities on a per-product basis that it is not worthwhile to
track them as direct materials (which involves including them in the bill of
materials). Thus, they are consumed as part of the production process, but are
not integrated in substantial amounts into a product or job. Examples of indirect
materials are:

• Cleaning supplies
• Disposable safety equipment
• Disposable tools
• Fittings and fasteners
• Glue
• Oil
• Tape

Indirect materials can be accounted for in one of two ways:

1. They are included in manufacturing overhead, and are allocated to the cost of
goods sold and ending inventory at the end of each reporting period based on
some reasonable method of allocation.
2. They are charged to expense as incurred.

Of the two accounting methods, inclusion in manufacturing overhead is

considered more theoretically accurate, but if the amount of indirect materials
is small, it is quite acceptable to instead charge them to expense as incurred.

Indirect materials are not usually tracked through a formal inventory record
keeping system. Instead, an informal system is used to determine when to order
additional indirect materials.
 BIBLIOGRAPHY
SOURCES OF DATA

Primary:

Book:

COST ACCOUNTING BY S.CHAND

COST ACCOUNTING BY I C JAIN

Secondary:

shodhganga.inflibnet.ac.in/bitstream/10603/148572/8/08_chapter%203.pdf

https://corporatefinanceinstitute.com › Resources › Knowledge › Accounting

www.universityofcalicut.info/SDE/BComCoreCostAccounting.pdf

www.yourarticlelibrary.com/material-management/materials...importance.../53156

https://courses.lumenlearning.com/sac.../the-role-of-standard-costs-in-management/