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materials Flashcards

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1
Q

how can types of materials be classified

A
  • according to the substances that make them up,
  • how they are measured, or their
  • physical properties

colour, shape, fire/water resistance, abrasiveness, flexibility, quality
can be made of combination of substances

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2
Q

classifications of inventory

A

Ø Raw materials
Ø Work in progress (WIP)
Ø Spare parts
Ø Finished goods (FG)

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3
Q

raw materials

A

goods purchased for incorporation into products for sale
direct cost of production- easily identifiable with a unit of production

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4
Q

work in progress

A

intermediate stage between manufacturer purchasing materials that go to make up finished product + finished product itself

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5
Q

finished goods

A

product ready for sale+despatch

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6
Q

Reasons for Inventory Control

A
  • Minimise holding costs
  • Avoid disruption or stock out
  • Minimise obsolescence / expiry that incurred losses
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7
Q

inventory control cycle

A

ordering -> purchasing -> receipts -> storing -> issue

material cycle:
purchase requisition, order goods, receive goods, store raw materials, issue materials to production, manufacture products, sell products

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8
Q

purchasing process

A
  1. stores department (request materials using authorised purchase requisition) (purchase requisitions may come from other departments directly as well).
  2. purchasing department sources suitable supplier for the materials(from a verified list)
  3. purchasing team orders goods from external supplier using authorised purchase order
  4. Once the warehouse has received the goods, they record the goods received in the system.
  5. Finally, finance team checks invoice against purchase order + delivery note -> processes the payment for materials
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9
Q

material requisition note

A

form to authorise release of materials from inventory into production process at company

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10
Q

purchase requisition form (1)

A

internal form providing authorisation for materials to be ordered from supplier (external)
- done by purchasing dept
- needs a form of authorisation from senior staff if large order

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11
Q

PO

A

buyer(purch dept) issues to supplier, indicating
- description (name+address, date)
- quantity
- price

legal offer
acceptance by seller creates contractual commercial relationship for intended transaction

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12
Q

2 copies of PO- issued to

A
  • person who requisitioned goods
  • accounts dept
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13
Q

DO / advice note

A

from supplier to goods receiving dept/STORE
check goods delivered against order form

no guarantee that its details are correct. If the actual goods cannot be inspected immediately, the delivery note should be signed ‘subject to inspection

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14
Q

GRN

A

completed by buyer upon delivery to verify whether order has been properly fulfilled
contains:
- order no
- description
- quant ordered
- quant delivered

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15
Q

invoice

A

shows the payment due will be received from supplier, before approved for crediting to suppliers account+subsequent payments

matched to GRN to ensure correct goods received

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16
Q

bin cards

A

used in manual systems to show/track where specific item of inventory is stored

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17
Q

materials requisition note used for

A

issued from stores to production(who initiates)
sent to warehouse

stores dept locates inventory, withdraw required amount, update system as appropriate

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18
Q

materials returned note

A

used when materials required is overestimated- excess returned to store

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19
Q

materials transfer note

A

materials already issued but not required for one job can be used for another job in progress- no point returning to warehouse

prevents one job being charged with too many materials and another with too little

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20
Q

stocktaking

A

counting physical inventory on hand at a certain date and then checking this against the balance shown in the clerical records

  1. periodic
  2. continuous
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21
Q

periodic stocktaking

A
  • usually carried annually+objective to count all items of inventory on specific date (end of accounting period)
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22
Q

continuous stocktaking

A

counting and checking a number of inventory items on a regular/rotating basis so each item is checked at least once a year, and valuable items can be checked more frequently.
+ less disruptive, less prone to error, and achieves greater control

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23
Q

inventory discrepancies

A

between physical amount of items in inventory + amount shown in records

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24
Q

possible causes of discrepancy

A

(a) Suppliers deliver diff quantity of goods from amount ordered.
avoided by ensuring all inventory is counted as it is received, and responsible person should sign document to verify quantity.
(b) The quantity of inventory issued to production is different from that shown on the materials requisition note.
Careful counting of all issues will prevent this.
(c) Excess inventory is returned from production without documentation.
avoided by ensuring that all movements of inventory are accurately recorded – in this case, a materials returned note should be produced.
(d) Clerical errors may occur in the inventory records - for example scanning something twice in error.
Regular checks by independent staff should detect and correct mistakes.
e) Inventory items may be wasted because, (get broken). All wastage should be noted on the inventory records immediately so that physical inventory equals the inventory balance on records- cost of the wastage is then written off to the statement of profit or loss
(f) Employees steal inventory. Regular checks or continuous stocktaking will help to prevent this+ only authorised personnel should be allowed into the stores.

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25
real amount needed considering wastage
Input material = Percentage used/Output material
26
common causes of avoidable wastage
- Inefficiency, carelessness, or other mistakes by workers, resulting in rejected items or wasteful usage of materials. - Badly maintained machinery or other equipment, causing unnecessary waste. - Poor quality of materials. - Failure to identify mistakes at an early stage in production and put them right before the wastage becomes excessive. - Holding materials in poor storage conditions, so that wastage occurs due to damage or deterioration.
27
What are the main causes of material wastage in production?
- Worker inefficiency or mistakes leading to waste. - Poorly maintained machinery causing extra waste. - Low-quality materials. - Failing to catch mistakes early in production. - Improper storage conditions leading to material damage.
28
What is buffer inventory, and why is it used?
- Buffer inventory is kept in reserve to handle demand fluctuations and unreliable suppliers. - It’s also used to take advantage of bulk purchase discounts. - Proper valuation of buffer inventory is crucial in inventory management.
29
why is it important that it is valued in a consistent way
so that closing inventory values and issues from stores can be valued accurately (inventory is received into stores from different suppliers and at different prices every week)
30
three main inventory valuation methods
- FIFO - LIFO - weighted average cost standard cost
31
LIFO
- Issues valued at the prices of the most recent purchases; hence inventory remaining will be valued at the cost of the oldest items
32
weighted average pricing methods
cumulative: calc avg cost of everything in inventory when something delivered
33
periodic
calculating a new inventory value at the end of a given period (rather than whenever new inventory is purchased, as with the cumulative weighted average pricing method) - much easier to calculate, less effort - must be applied retrospectively
34
FIFO +
- logical pricing method representing what's physically happening - easy to understand+explain to managers - closing inv value can be near to valuation based on cost of replacing inv - Permitted by accounting standards as an acceptable approach to inventory valuation - Closing inventory has a value close to its replacement value - Might reflect physical use of stock
35
FIFO -
- need to identify each batch separately - managers find it difficult to compare costs+make decisions when they're charged with varying prices for same materials
36
LIFO +
inv issue at price close to current market value- EXCL when high rate of inflation - managers continually aware of recent costs when making decisions bc costs being charged to department/products will be current costs
37
LIFO -
- sometimes results in several batches half used in inv records before another batch received - opposite of what's physically happening + therefore difficult to explain to managers - decision making diff bc of variations in prices
38
weighted pricing +
- price fluctuations smoothed out - easier to use data for decision making - easier to administer than FIFO/LIFO bc no need to identify each batch separately
39
weighted pricing -
- resulting issue price is rarely an actual price that's been paid+can run to several decimal places - prices tend to lag a bit behind current market values when there is gradual inflation
40
perpetual inventory system
perpetual inv: recording of receipts, issues, resulting balances as they occur- in either quantity/quantity+value
41
checking quant of inv held on certain date
checking balance against balances on store ledger cards/bin cards carried on periodic/continuous basis
42
inventory control
regulation of inventory levels, including putting value to inventory issued+remaining incl ordering, purchasing, receiving, storing goods
43
inventory holding costs:
- cost of storage space + operations - interest cost - insurance - obsolescence - deterioration
44
inventory ordering costs:
- clerical+admin costs (purchasing, accounting, receiving goods) - delivery/transport cost - production run costs(vary w/ number of production run)
45
stock out costs
- loss of sales - loss of customer goodwill+future sales - production storage cost+staff morla - reduced profit
46
inventory control levels include
- reorder - minimum - maximum
47
reorder level:
pre-determined level of inventory at which order is paced to avoid stock out when reached, replenishment order should be placed
48
min:
warming level to avoid stock out
49
max:
warming level to avoid wastage
50
lead time
time expected to elapse between placing an order and receiving an order for inventory
51
Reorder quantity/EOQ
when the reorder level is reached, the quantity of inventory to be ordered is known as the reorder or EOQ
52
demand
rate at which inventory is being used up. It is also known as inventory usage
53
If the demand in the lead time is constant, the reorder level is calculated as follows
Reorder level (when demand in lead time is constant) = Usage x Lead time
54
reorder level formula
max usage x max lead time
55
min level
reorder level - (avg usage x axvg lead time)
56
max level
reorder level + reorder quant - (min usage x min lead time)
57
avg inventory
safety inventory(min level) + reorder quant/2
58
EOQ
order quant that minimises inv costs assumes avg inv held = half of reorder quant found in graph where holding costs = ordering costs
59
EOQ formula
root 2CoD/Ch
60
inventory reports
- daily listing - inventory lists - inv movements - inv valuations - supplier analysis
60
computerised inventory files
contains record for each item, each with fields(ind data pieces) - inventory code - description - supplier code - quant per unit - cost price per item - control levels - location - movement history - job code
60
bill of materials
allows assembly records(explosion records) to be compiled contains details of various assemblies making up final product Each individual assembly could be further broken down into its constituent materials and components
60
common fallacy
assumed that computerising inventory records will guarantee they are 100% accurate. In fact discrepancies are just as likely to occur in a computerised as a non-computerised system. Stocktaking is thus equally important in a computerised inventory system as it is in a manual system
61
cost of sales=
value of opening inventory + cost of goods produced - value of closing inventory
62
setting maximum control level seeks to ensure inventory holding is not too high bc holding inventory is expensive
63
which variables relevant in calculating EOQ
Co: order cost Ch includes finance charge on capital, including investment in inventory
64
during inflation, profits will be higher with FIFO than LIFO FIFO > weighted average > LIFO
as FIFO issues earlier units(cost less) than LIFO, cost of issues is lower, resulting in higher reported profit (if goods sold at current market value?)
65
introduction of buffer stock
average stock levels would increase - holding costs per unit will INCREASE EOQ wont be affected total ordering costs wont be affected
66
effective raw materials control
list of suppliers approved by purch dept should be recorded to ensure best PRICE+QUALITY of raw material is ordered+ensure timely delivery - approved customers irrelevant, - purch order should be approved by purchasing (not sotres- which requests the material) - purch invoices should be checked against purch order+delivery note/record of GRN to ensure correct goods BEFORE PAYMENT. check against purch req just confirms what was requested, not what was received
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