Material

Lecture-10
Mian Ahmad Farhan (ACA)
Charge Of Loss

Charge
Normal Loss FOH cost
Charge
Abnormal Loss Job
 Loss

Normal Loss : The Loss which was expected

Abnormal Loss : The Loss which was not expected

 Example

A & Co manufactured 500 ceiling fans to fill an

order by incurring :

Direct material Rs. 150,000

Direct Labor Cost 100,000
F.O.H (60% of Labor cost) 60,000
Total Factory Cost 3,10,000
Rework Cost on Defective Work

Material Rs. 10,000

Labor 30,000
F.O.H (60% of Labor cost) 18,000
Solution

Work in process 310,000

Material 150,000
Payroll 100,000
F.O.H applied 60,000
 Solution

Normal Loss Abnormal Loss

F.O.H Control 58000 Work in process 58000
Material 10000 Material 10000
Labor 30000 Labor 30000
FOH 18000 FOH 18000
 Solution

Normal Loss Abnormal Loss

Finish goods 310,000 Finish goods 368,000
Work in process 310,000 Work in process 368,000
Per Unit Cost
Cost of goods manufactured
Per unit cost =
units manufactured

Normal Loss Abnormal Loss

310,000 368,000
500 500
= Rs.620 per = Rs.736 per
unit unit
Example

Spoiled inventory units 50 fans.

Spoiled units

Total cost = 310,000 x 50 =31000

500
Example

Spoiled inventory units 50 fans (Alternative option) .

Spoiled units

Material 150,000 x 50 =15,000

500

Labor 100,000 x 50 = 10,000

500

FOH 60,000 x 50 = 6,000

500 31,000
 Spoiled Goods

Normal Loss Abnormal Loss

Scrap Inventory 10,000 Scrap Inventory 10,000
FOH Control 21,000 Work in process 10,000
Work in process 31,000
 Spoiled Goods

Normal Loss Abnormal Loss

Finish goods 279,000 Finish goods 300,000
Work in process 279,000 Work in process 300,000
Per Unit Cost in Spoiled Inventory
Cost of goods manufactured
Per unit cost =
units manufactured

Normal Loss Abnormal Loss

279,000 300,000
450 450
= Rs.620 per unit = Rs.667 per unit
Material Requisition

It is a document through which work station

incharge receives material from store.
 Documents

Material Requisition Work station incharge

Purchase Requisition Store incharge

Purchase order Supplier

Important Documents

Material requisition

Purchase requisition

Purchase order

Delivery note

Purchase invoice

Goods received note

Bin card

Store ledger card

 Purchase Requisition

PURCHASE REQUISTION

Saba & Co No: 614

Lawrence Road Lahore. Date of Request-------
Date Wanted-----------
Request by department---------------
Description Material code Quantity

COPY-1 PRCHASING DEP Requested by -----------------------

Approved by ------------------------
 Purchase Order

PURCHASE ORDER
STICH MASTER No. 2518
Township Lahore This number must appear on all packages and
forms.
To,---------------- Date-----------------

Ship Date Wanted Ship FOB Terms

to: Via

Description Catalogue Quantity

No
 DEBIT NOTE
DEBIT NOTE
No.-------
Date------
Saba MASTERS
Township Lahore.
TO-(Supplier)-----------
We are debiting your account with the value of under mentioned material for the
Reasons stated. Meanwhile we wait for your instruction.

Quantity Description Rate Amount

Reasons-------------------------------------------------- Date received

Goods Received Note No

 Store Ledger Card

Date Receipt /Consumption Issue /Sale Balance

Qty Rate Amount Qty Rate Amount Qty Rate Amount

 Bin Card

Re order level__________ Maximum level __________

EOQ _________________ Minimum level __________
Danger level ____________

Date Ref Quantity Quantity issued Balance

Received
 Inventory Turnover Ratio

Inventory Turnover ratio shows the stock position

of the store room. In how many times inventory is
used in a year.

Formula:
Cost of goods sold or Material consumed
Average Inventory
Average Inventory

Opening Inventory + Closing Inventory

2
Example

Opening stock 1000 units

Material Purchased 7000 units
Closing Stock 500 units
Material consumed Rs. 7500
Solution

Inventory Turn over Ratio

Material consumed
Average Inventory

7500
=
(1000+500)/2

= 10 times
Inventory Holding period

No of days in a year
Inventory Turn over Ratio

360 = 36 days
10