UNIT 4 STORING AND ISSUING MATERIAL

Content

4.0 Aim and Objective

4.1 Introduction
4.2 Storage
4.3 Issuance
4.3.1 Material Requisition
4.3.2 Material Ledger
4.3.3 Material Requisition Journal
4.3.4 Job Cost Sheet
4.3.5 Department Overhead Analysis Sheet.
4.4 Principles of Internal Control
4.5 Special Issuing Procedure
4.6 Return of Materials to the Storeroom
4.7 Summary
4.8 Answers to Check Your Progress Exercises
4.9 Glossary
4.10 Model Examination Questions

4.0 AIMS AND OBJECTIVE

After Completing this unit you should be able to understand.

 The procedure that should be followed when materials are issued from the
storeroom.
 What bill of material is and the special material issuing procedure.
 The procedure to be followed when materials are returned to the storeroom from
production departments

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4.1 INTRODUCTION

Internal control procedures for purchasing must be matched by similar procedures for storing
and issuing materials in order to truly safeguard the investment. These precautionary
measures are necessary to avoid damage, waste, theft, and obsolescence. Physical control
begins the moment the materials are delivered to the storeroom, and continues to be applied
during storage and issuance. Written control begins with the receiving report and recording
the materials ledger, and continues through entries to record issuance and use.

4.2 STORAGE

It is to the advantage of the firm that admission to the storeroom should be restricted without
a proper permeation of the storeroom supervises. The storeroom supervisor is responsible for
the: -
1. Material ledger card
2. The protection of material in the storeroom
3. Identification of the material

Each type of materials is assigned a number, indicating the type of materials and its location.
Materials should be stored according to it nature in a systematic manner in bins, on racks, or
on shelves.

Attached to each shelves, or rack a bin tag should be maintained. It is not mandatory firms
should maintain this tag or card. It is an informal but carefully maintained record showing
only the quantities of the material received, issued, and on hand at all times.

Bin Tag
Material No._________ Location________

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 Reorder point________
Description__________

Date Quantity Quantity Balance

received issued

4.3 ISSUANCE

The use of all materials must be limited to properly authorized purpose.

4.3.1 Materials requisition

No material should be issued from storeroom without a written form is called a material
requisition.
requisition. It is prepared in duplicate by the department head or supervisor. The requisition
form should indicate.
 The quantity of material
 Material number
 Description and job no. To be charged
 In the case of indirect material, the requisition shows the department to which
the materials to be charged.

The storeroom supervisor issues the materials and makes the necessary notations on the
requisition, upon receipt of the material requisition. One copy is filed as a receipt and the
second copy is given to the storeroom clerk. The storeroom clerk enters the unit price and
computes and enters the total amount.
Material Requisition
Deliver to___________ No. 0005
Acct._________
Charge-job______ Date____________

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 - Dep._____
Quantity Material No. Description Unit price Amount

Entered on material lager card Entered in material Entered in job Entered on dept.
requisition journal cost sheet overhead and sheet
Approved by Delivered by Received by

4.3.2 Materials ledger

Completing the cost computations on the requisition, the storeroom clerk records and enters
in the issue section of the material ledger card, calculates the new quantity on hand, and
records it in the balance section.

A materials ledger card is kept for each type of materials available in the storeroom. Each of
them serves as a perpetual inventory record. The material ledger card is a subsidiary ledger
reconciled against the Raw Material controlling account. The balance of Raw material
control and the sum of the Birr amount on material card should agree at the end of the period.

Material ledger card

Material _____________ Reorder point____________

Number _____________ Reorder quantity__________

Received Issued Balance

Unit Price Amount Unit Price Amount Unit Price Amount
Date Reference

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4.3.3 Material Requisition Journal
After information from the requisition has been recorded on the related material ledger card,
the requisition will be forwarded to the cost clerk, to journalize the transaction in material
requisition journal so that the effect of the issue will be reflected on in the general ledger cost
accounts.

Such kind of special journals are mostly used in a job order costing system. It improves
efficiency of the journalizing process when compared to using only a general journal. These
special journals are used to avoid writing the many long and tedious entries involved in
issuing and using materials.

Materials requisition journal

Month___________ Year_____________ Page No._____

Work in process MFG.OHD Raw material

Date Ref. No. Job or dep. Dr. Control Dr. Control Cr.

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4.3.4 Job Cost sheet

The cost clerk next step is to post the information from the requisition to the material section
of the proper job cost sheet.

Job Cost sheet

Customer Job_____________
Description Date started_______
Quantity Date completed.

Material
Date Ref. No. Amount
Direct labor Manufacturing overhead

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4.3.5 Department overhead analysis sheet

Indirect materials are not charged to a specific job; therefore information from requisitions is
posted to the indirect material section of the department overhead analysis sheet. A separate
sheet should be maintained for each respective department.

Department overhead analysis sheet

Department _______________ Month________Year_______

Date Ref. Total Indirect Indirect Payroll Repairs Utility Insurance Other
materiel labor tax &
mintage

4.4 PRINCIPLES OF INTERNAL CONTROL

1. Materials should not be issued without proper authorization.

2. Materials should be protected, clearly identified, and stored in a particular place.
3. Restriction of admittance without authorization.
4. All receipts and issue of material should be recorded on ledger card.
5. Different personnel should involve in storage, and issuance operation.

4.5 SPECIAL ISSUING PROCEDURE

A complete and well-designed system for the control of materials issuance also includes
provision for special situations.

4.5.1 Bill of material

In some case, at one time all materials may be issued for a specific job. In this case bill of
material can serve as a requisition.

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4.6 RETURN OF MATERIALS OF STOREROOM

At a time materials that have been issued may be returned to the warehouse. This can happen
due to:
 Taking excess material
 Withdrawing the wrong material

Whenever materials are returned they should be accompanied by a returned materials report
similar to the material requisition. The department that originally requisitioned the material
should fill out the report.

After storeroom supervisor checks the returns, the bin card is adjusted by showing the
number of units returned in parentheses in the quantity issued section. The number of units
returned is added to the balance. Then, the returned materials report is given to the storeroom
clerk, who follows the procedure below.

1. Enter the unit and total cost figures on the report. The unit cost figure used is the
same as that used when the materials were charged out.
2. Make an entry in parentheses in the issued section of the materials ledger card.
The new quantity and cost amounts are then entered in the balance section of the
card.
3. Send the returned material report to the cost clerk.

The cost clerk completes two important entries.

1. An entry in parentheses in the indirect materials column of the department
overhead analysis sheet or in the materials section of the appropriate job cost
sheet.
2. An entry covering the return in the returned material journal.

Illustration – A.B.C. Household manufacturing produce different kind of house hold

product. On June 15,2003, the production department withdraw a raw material (20 metal
table – leg each cost $ 10.00 birr) to complete job No. 100 the material has a cod no of 210.

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 After completing the job it was discovered that 10 piece were execs and should be returned
back to the storeroom.

Step 1- Recording on material Requisition.

Materials requisition
No. - 100
Deliver to – Production Department
Acct.__________ Date, June15, 2003.
Charge – Job 100
- Dep. _____
Quantity Material No. Description Unit Price Amount
10 piece 100 Metal table leg $10 $100

Entered in material Entered in materials Entered on job Entered on dep.

ledger card requisition journal cost sheet Overhead and sheet.
Approved by Delivered by Received by

Step 2 – Recording on material ledger card.

Material Recorder Point _______

Number Recorder quantity _____

Received Issued Balance

Unit Price Amount Unit Price Amount Unit Price Amount
Date Reference
June 1 B.B. 100 $ 10 $ 1000
June 20 $ 10 $ 200 80 $ 10 800
15
(10) 10 (100) 90 $ 10 900

Step 3 – Recording in materials requisition journal

Material Requisition journal for monthly – June 2003 Page

Date Req. No. Job or WIP MFG. OHD Raw material.
dep. Dr. control Dr. Cr.

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 June 15 100  100 200 - 200

Step 4 – Recording on job cost sheet

Job Cost sheet

Customer – Ato Abebe Job No 100
Description - Date started – June 30,2003
Quantity – 10 Date completed ________
Materials Direct labor Manufacturing overhead applied.
Production department Production department
Hrs Amount Hrs Amount
Date Ref. No. Amount
June 15 100 200
(100)

4.6 RETURN OF MATERIALS TO THE STOREROOM

Due to requesting too much material, withdrawing the wrong materials, or other reasons
materials that have been issued are returned to the storeroom. When materials returned must
be accompanied by a returned materials report, which is similar to the material requisition.

Return material Report

No. 50
Acct.
Credit – job – 100 Date__________
- Dept. Dept. Production
Quantity Material No. Description Unit cost Amount
10 120 10, metal table leg 10 100
Reason for return excessissive Authorized by

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After the storeroom supervisor checks, the returns, the bin card or tag is updated (adjusted)
by showing the number of units returned in parentheses in the issued column. This
adjustment will increase the balance. Then the returned material report is forwarded to the
storeroom clerk, who performs the procedures listed below.
1. Record the unit cost figure on the report, which is the same as that used when the
materials were charged out.
2. Enter in parenthesis in the issued section of the material ledger card, which will
increase the balance by the same amount.
3. Pass the returned materials report to the accountant.
The cost clerk completes two important entries.
1. An entry in parentheses in the indirect material column of the department
overhead analysis sheet (in the case of indirect material) or in the materials
section of the appropriate job cost sheet in the case of direct materials.
2. Recording the return in the returned materials journal.

Returned materials journal:

For month June Year 2003 Page No.
Work in MFC. OHD Raw
Date Report Job or dept. process Cr. Controls Cr. material Dr.
June 15 50 100 100 - 100

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Check your progress

1. How are material requisition used in controlling the material inventory

_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
2. What procedure should be used in storing and issuing materials to achieve good internal
control?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
3. Why is it necessary to maintained departmental overhead analysis sheet for each
production and service departments?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

4. What are job cost sheet and what type of data do they provide to management?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

4.7 SUMMING UP

A firm procedure for storing and issuing materials must have a verity of internal controls to
protect the investment that the firm has in these items.

Materials on hand must be carefully identified, stored, recorded, and preserved by the
storeroom supervisor and the storeroom staff. Materials are issued only upon written recipe
of a materials requisition. When materials have been issued, entries are recorded on the
material ledger card, the materials requisition journal, and the job cost sheet or departmental
overhead analysis sheet.

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4.8 ANSWERS TO CHECK YOUR PROGRESS EXERCISES

- No material is issued with ought a proper written requisition. There for the number
and amount material request should agree with the amount and number of materials
issued.
- A perpetual inventory should be used and also material should e kept according to its
nature, on rack, shelves, or bines.

1. Bin tag only shows the quantity but material ledger card shoes both quantity as well
as amount
2. The material requisition is the source document to determine the amount of material
used and without this requisition form no material will be issued from the store room.
3. Work in process------------179,240
Manufacturing over head------19,520
Row material control-------------198,760

4. Row material-------------------11,820
work in process----------------10,700
MOH. Control------------------920

4.8 GLOSSARY

 Material purchased – entry recorded as goods are received.

 Materials issued – entry recorded as goods are issued. Data taken from materials
requisition.
 Materials returned to storeroom–
storeroom– entry recorded as goods are returned. Data taken
from returned materials report.
 Materials purchased–
purchased– summary posting at end of period from voucher register’s raw
materials column.
 Materials issued – summary posting end of period from total Raw materials column in
material requisition journal.

4.9 MODEL EXAMINATION QUESTIONS

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1. How does a bin tag differ from a material ledger card?
2. How are materials requisitions used in controlling the materials inventory?
3. A.B.C. manufacturing company had requisitions $179,240 for direct material and
$19,520 for indirect materials. Prepare the entry in general journal form to record
the cost of materials requisitioned for the month.
4. During September 2002 DH Geda production department had returned $ 10,700
in direct materials and $ 920 in indirect material prepare the entry in general
journal form to record the cost of the materials requisitioned for the month.

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