Material Control

Need for Material Control

One of the first steps in installing a cost and management accounting system is planning the proper control of materials and supplies from the time orders are placed until they have been consumed in the network and by day-to-day operations.
Materials represent an important asset and are the largest single item of cost in almost every enterprise; accordingly, the success or failure of an enterprise may depend largely upon efficient material purchasing, storage, accounting, utilisation, and control.

Where material:

• Is not effectively controlled, the excess stock is likely to occur, resulting in unnecessary tying-up of capital and loss through deterioration and undesirability.
• Shortages may arise at the time when they are urgently needed, which results in production delays.

Ordering the correct quantity and quality of materials, at the most favourable price, and ensuring it arrives at the right time, is key to the success of any enterprise. Proper control can reduce theft, losses, misappropriation, deterioration, breakage, and additional storage costs to a minimum. Finally, and most importantly to the cost accountant, is the impossibility to produce reliable costing information if the records of materials are unsatisfactory/incomplete because a cost statement cannot be more accurate than the information on which it is based.

Click here to view a video on 4 steps to simplify inventory management.