Apportionment of Joint Cost of Materials

Sometimes, when materials are purchased in bulk at a single rate, there will be a mixture in terms of item quality/grade. In such cases, it is necessary to determine the proper cost of each quality/grade of the material. This process of finding the separate cost of each material is called apportionment of the joint cost of materials. The cost of the various qualities/grades is ascertained based on…

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Valuation of Materials Purchased/Received

Valuation of Materials: Definition One of the main objectives of cost accounting is to ascertain accurate costs. Accuracy of costs depends upon knowing the cost of materials consumed and the labor used to produce a particular product. Material is the most important element of cost. For this reason, it should be valued and charged to cost units properly. Valuation of materials can be studied from t…

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A.B.C. Analysis of Material Control

ABC Analysis: Definition ABC analysis (or proportional parts value analysis) is a technique used to exercise control over materials based on their importance or value. ABC Analysis: Explanation Under this system, all items of material are classified into three categories—A, B, and C—according to their value. Category A consists of 5% to 10% of the total items in the store and accounts for 70% to 8…

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Material Costing: Practical Problems and Solutions

Problem 1: Calculation of Raw Materials to Produce Finished Products/Goods A factory uses a specific raw material. There are also three processes A, B, and C. The data relating to inputs, outputs, and rejections for the month of April are given below. Inputs (in pieces) (including opening W.I.P) Rejections (in pieces) Output (in pieces) A 18,000 6,000 12,000 B 19,800 1,800 18,000 C 20,400 3,400 17…

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Inventory Turnover Ratio

What Is Inventory Turnover? Inventory turnover is the rate at which a company sells its inventory. As such, inventory turnover refers to the movement of materials into and out of an organization. It is in the best interest of the organization to compare the turnover of different types of (and grades of) material as a measure of detecting stock that does not move regularly. In this way, capital inv…

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Material Abstract

Materials Abstract: Definition and Meaning To determine the cost of materials used on a particular job or work order, the following aspects are usually recorded and analyzed: Material requisitions Material returned notes Material transfer notes The recording sheets specially meant for this purpose are known as materials abstracts or materials issue analysis sheets. Specimen/Format of Materials Abs…

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Transfer of Materials

Transfer of Materials: Definition The direct transfer of surplus materials from one job or work order to another is, as a rule, undesirable. It should be discouraged as far as possible. It is, however, justified when an urgent job must be completed. In these cases, it may be necessary to appropriate surplus materials to avoid the delays inherent in the normal routine of returning materials to stor…

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Material Return Note

Usually, the materials that are obtained for a specific job are not fully consumed or they are drawn in excess of requirements. The excess quantity is returned to the stores, together with a material return note. The storekeeper should place the returned materials in the appropriate bin. In turn, a record of the materials should also be entered into the “In” or “Received” column of the bin card. F…

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Material Requisition

Whenever specific materials are required in a production department, a materials requisition form must be prepared. Also known as a requisition slip or materials requisition note, a materials requisition form is a document that authorizes and records the issue of materials for use. In other words, a materials requisition form is used to draw materials from the stores, and it specifies the quantity…

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Maximum Stock Level

Maximum Stock Level: Definition and Explanation A maximum stock level is the upper limit of stock that should not be exceeded under normal circumstances without the prior agreement of the management. The aim of setting a maximum stock level is to avoid undue investment of capital leading to loss of interest, obsolescence of materials, and additional overheads in the form of higher rents. Main Fact…

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