Materials form a significant cost of output units and, therefore, should be controlled. Material control is more than simply recording the accounting transactions relating to material cost. Control should be implemented to ensure that material is available:
a) In appropriate quantities
b) In appropriate quality
c) In appropriate location
d) At an appropriate time
e) At the most economic cost.
An effective material cost control system has the following features among others:
(i) Adequate perpetual inventory records: there needs to be maintained records for each item of inventory held in store. Some form of stock record card will be required for each stock item recording, in addition to a specific materials the debt and quantity of receipts, issues and consequent balancing figure.
(ii) Checking of perpetual inventory records: perpetual inventory records should be subjected to some form of check. This may be a form of continuous or periodic stock taking.
(iii) Maintenance of target stock levels: appropriate stock level and stock management practices should be exercised. The stock level management involves knowing the minimum stock level, maximum stock level and the reorder quantity level.
(iv) Authorization of orders: orders passed to purchasing officer for replenishment of stock items should be signed by designated staff in the store. Issues from the store should be made only on receipt of signed material requisition forms.
(v) Responsibility and authority relationships: responsibility and authority of material stores should be clearly delegated to specific individual(s). If more than one individual is required to operate the store, then personnel should be given the responsibility of clearing the designated tasks.
(vi) Reporting: Quantity or value of items held in store should be reported regularly to the organization’s management.
(vii) Control: the store personnel should on a regular basis compare targets with actual stock levels and take appropriate action indicated by that comparison to investigate the deviation e.g. why a particular stock has fallen below minimum and immediately informing those responsible to take appropriate action. Controls can be exercised in many areas or points in the business cycle, not only the stores. These include:
a) When the choice is made as to the type and quality of material to be used.
b) When the purchase order is being placed with the chosen supplier.
c) On receipt of the material from supplier, check the appropriateness of quality and
quantity of materials received.
d) Where the material is held in store before use: It must be safe from theft and damage.
e) Where the material is issued from the store: It must be issued to the correct department.
f) Where the material is being used for intended purposes e.g. the material must be utilized to produce the desired output.
The material control system must attempt to ensure that the company does not incur costs in excess of an agreed efficient level of expenditure. Lack of adequate control routines will result in the incidence of costs in excess of an acceptable level, reduced profitability of production and increased operational costs.