CMA (CH-5) MATERIALS COST
LECTURE-NOTES:
MATERIALS COST:
CONTENTS:
1. Materials cost classification
2. Stores department
3. Materials control cycle
4. Recording materials costs
5. Pricing issues of materials
6. Bookkeeping entries
7. Controlling inventory levels
1. INVENTORY
INVENTORY
For Trading Business For Manufacturing Business
Finished Goods
e.g Chips, Coke, Shoes Raw Material W.I.P Finished Goods
1. Crude Oil Oil Refining Petrol
2. Yarn Machine Garments
3. Milk Machine Yogurt
Raw materials
Raw materials are goods purchased which are used to convert into finished good for sale.
Direct material Indirect material
Direct materials are the materials that can be Indirect materials are other materials used in the
economically attributed to a specific unit of production process that cannot be directly
production. attributed to a unit of production.
• the metal used to make spoons. • oil used for the lubrication of production
• the flour to make bread. • machinery
• Glue, Nail if used in small quantities
1 | HM Hasnan [CFM (UK), CFMA, AFA, MA (Economics)] WhatsApp +92-321-4554927
, CMA (CH-5) MATERIALS COST
Work in progress
Work in progress (WIP) refers to units that have been started but are incomplete at the end of the
accounting period.
Finished goods
Finished goods are completed and ready for selling to customers.
2. FUNCTION OF THE STORES DEPARTMENT
2.1 RECEIPT OF GOODS
When raw materials are received from suppliers, they will normally be delivered to the stores department.
• check the original purchase order
• quantity and quality of goods
2.2 STORAGE OF MATERIALS
Once the materials have been received, they must be stored until required by the production
departments.
• foodstuffs must be stored at the correct temperature.
• wood must be stored in dry conditions
2.3 ISSUE OF MATERIALS TO PRODUCTION DEPT.
Store department should provide the correct quantity and quality of materials to production department
for production.
2.4 RECORDING OF RECEIPTS AND ISSUES
Many organisations use bin cards for the recording of the quantities of raw materials that are received
from suppliers and issued to the production departments.
3. MATERIALS CONTROL CYCLE
3.1 OVERVIEW OF PROCEDURES:
2 | HM Hasnan [CFM (UK), CFMA, AFA, MA (Economics)] WhatsApp +92-321-4554927
LECTURE-NOTES:
MATERIALS COST:
CONTENTS:
1. Materials cost classification
2. Stores department
3. Materials control cycle
4. Recording materials costs
5. Pricing issues of materials
6. Bookkeeping entries
7. Controlling inventory levels
1. INVENTORY
INVENTORY
For Trading Business For Manufacturing Business
Finished Goods
e.g Chips, Coke, Shoes Raw Material W.I.P Finished Goods
1. Crude Oil Oil Refining Petrol
2. Yarn Machine Garments
3. Milk Machine Yogurt
Raw materials
Raw materials are goods purchased which are used to convert into finished good for sale.
Direct material Indirect material
Direct materials are the materials that can be Indirect materials are other materials used in the
economically attributed to a specific unit of production process that cannot be directly
production. attributed to a unit of production.
• the metal used to make spoons. • oil used for the lubrication of production
• the flour to make bread. • machinery
• Glue, Nail if used in small quantities
1 | HM Hasnan [CFM (UK), CFMA, AFA, MA (Economics)] WhatsApp +92-321-4554927
, CMA (CH-5) MATERIALS COST
Work in progress
Work in progress (WIP) refers to units that have been started but are incomplete at the end of the
accounting period.
Finished goods
Finished goods are completed and ready for selling to customers.
2. FUNCTION OF THE STORES DEPARTMENT
2.1 RECEIPT OF GOODS
When raw materials are received from suppliers, they will normally be delivered to the stores department.
• check the original purchase order
• quantity and quality of goods
2.2 STORAGE OF MATERIALS
Once the materials have been received, they must be stored until required by the production
departments.
• foodstuffs must be stored at the correct temperature.
• wood must be stored in dry conditions
2.3 ISSUE OF MATERIALS TO PRODUCTION DEPT.
Store department should provide the correct quantity and quality of materials to production department
for production.
2.4 RECORDING OF RECEIPTS AND ISSUES
Many organisations use bin cards for the recording of the quantities of raw materials that are received
from suppliers and issued to the production departments.
3. MATERIALS CONTROL CYCLE
3.1 OVERVIEW OF PROCEDURES:
2 | HM Hasnan [CFM (UK), CFMA, AFA, MA (Economics)] WhatsApp +92-321-4554927
