Materials often form the largest portion of total cost in manufacturing. Material costing deals with the purchase, receipt, storage and issue of materials so that the right quality is available at the right time at minimum cost. A good material control system reduces losses, avoids stock-outs and prevents over-stocking.
Material costing includes:
Importance: It directly affects cost of production, working capital and profitability.
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Bin card and stores ledger differ as follows:
FIFO (First In First Out) issues the oldest purchase lots first; closing stock tends to be valued at recent prices.
LIFO (Last In First Out) issues the latest purchase lots first; closing stock tends to be valued at older prices.
In rising prices, FIFO usually shows higher closing stock and higher profit than LIFO.
Cost accounting is a form of managerial accounting that aims to capture a company's total cost of production by assessing the variable costs of each step of production as well as fixed costs, such as a lease expense.
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Materials often form the largest portion of total cost in manufacturing. Material costing deals with the purchase, receipt, storage and issue of materials so that the right quality is available at the right time at minimum cost. A good material control system reduces losses, avoids stock-outs and prevents over-stocking.
Material costing includes:
Importance: It directly affects cost of production, working capital and profitability.
Exam tip: In rising prices, FIFO generally shows higher closing stock and higher profit than LIFO.
Stock levels help maintain optimum inventory and avoid stock-out/overstock.
EOQ is the order quantity that minimises total inventory cost (ordering + carrying).
[ EOQ = \sqrt{ rac{2AO}{C}} ]
Where:
Normal vs abnormal:
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EOQ is the order quantity that minimises total inventory cost (ordering + carrying).
Formula:
[ EOQ = \sqrt{\frac{2AO}{C}} ]
Given: A = 10,000 units, O = ₹250, C = ₹5
EOQ = sqrt((2 × 10,000 × 250) / 5) = sqrt(5,000,000 / 5) = sqrt(1,000,000) = 1,000 units
So, the optimal order size is 1,000 units per order.
