Materials Accounting in Managerial Accounting

Summary:

In the study of accounting for materials in managerial accounting, there are several objectives to be achieved. Firstly, understanding the principles of materials control is crucial. This involves grasping the procedures and documents associated with purchasing, storing, and issuing materials. By comprehending these aspects, one can effectively manage inventory and ensure efficient material flow within an organization.

Storing materials serves various objectives, such as facilitating speedy receipt and issuance, proper identification, and protection against damage and deterioration. Maintaining accurate inventory levels is essential for effective materials control. Two common methods for recording material levels are bin cards and store ledger accounts. These methods help track the movement and availability of materials.

Calculating materials control levels is crucial to determine the optimal quantity of materials. The re-order level, minimum level, and maximum level are critical in managing inventory. These levels consider ordering costs, holding costs, and stockout costs. By understanding these levels, organizations can decide when and how much to order.

The economic order quantity (EOQ) is a vital concept in materials control. It is the re-order quantity that minimizes combined costs, including materials holding costs, purchase costs, and stockout costs. By calculating the EOQ, organizations can optimize their inventory management and minimize costs.

Valuing materials is an essential aspect of accounting for materials. Different methods, such as FIFO, LIFO, and AVCO, are used to determine the value of store-issued materials. Each method has its advantages and disadvantages. FIFO follows the logical flow of materials and allows for a closer valuation of replacement costs.

Excerpt:

Materials Accounting in Managerial Accounting

Unit objectives:
By the end of your study of this unit, you should be able to:
• Explain the principles of materials control
• Explain the procedures and documents involved in purchasing, storing, and issuing materials
• Explain the objectives of storing materials
• Calculate inventory control levels and the economic order quantity
• Describe how the materials valuation methods of FIFO, LIFO, and AVCO work
• Calculate the value of materials after issues using FIFO, LIFO, and AVCO