Materials, Wastage and Inventory Control

Flashcards about types of materials, raw materials, purchase orders and inventory control.

Name three ways materials can be classified.

By the substances that make them up, how they are measured, and their physical properties.

What is a raw material?

Goods purchased for incorporation into products for sale.

Define 'work in progress'.

An intermediate stage between purchasing materials and a finished product.

Give an example of work in progress.

Terracotta pots that have been shaped but not fired.

What is a finished good?

A product ready for sale or dispatch.

What are direct materials?

Materials easily identifiable with a specific unit of production, such as raw materials.

What are indirect materials?

Materials not easily identifiable with a specific unit of production, often referred to as consumables.

Give an example of an indirect material.

Cleaning products used in a factory.

What is a 'purchase requisition form'?

A document completed by a department requiring goods, asking the purchasing department to carry out the transaction.

What details should be included on an order form?

Name and address of ordering organisation, date of order, delivery details, and details of goods/services.

What is a despatch note?

A document sent by the supplier to warn that goods are on their way.

What is a delivery note?

A supplier's document presented upon delivery, which should be signed 'subject to inspection' if goods cannot be immediately inspected.

What is a goods received note (GRN)?

A document completed by goods inwards after a physical check of delivered goods, used to verify the order.

What is the purpose of identifying suitable suppliers?

Identifying suitable suppliers helps retain cost information.

What is the costing department mainly interested in?

The costing department mainly concentrates on the actual cost of materials.

Why buy 'extra' materials?

To accommodate for any wastage that may occur in some production processes.

Give four common causes of avoidable wastage.

Inefficiency by workers, badly-maintained machinery, poor quality materials, bad storage conditions.

Name three ways of measuring wastage.

Input wastage, output wastage, and rework costs.

What is Just-in-time (JIT) inventory management?

When materials are received and products are produced only when they are needed, thereby minimizing the amount of inventory on hand.

What is buffer inventory?

A reserve of inventory to cope with fluctuations in demand and unreliable suppliers.

Describe the 'First In, First Out' (FIFO) method.

This method values issues at the prices of the oldest items in inventory at the time the issues were made. The remaining inventory will then be valued at the price of the most recent purchases.

Describe the 'Last In, First Out' (LIFO) method.

This method values issues at the prices of the most recent purchases; hence inventory remaining will be valued at the cost of the oldest items.

Describe the 'cumulative weighted average pricing' method.

This method calculates an average cost of all the litres in inventory whenever a new delivery is received.

Describe the 'periodic weighted average pricing' method.

This involves calculating a new inventory value at the end of a given period.

FIFO advantage

Closing inventory value can be near a valuation based on the cost of replacing inventory.

FIFO disadvantage

FIFO can be cumbersome to operate because of the need to identify each batch of material separately.

LIFO advantage

Inventories are issued at a price close to current market value.

LIFO disadvantage

The method can be cumbersome to operate because it sometimes results in several batches being only part-used in the inventory records before another batch is received.

Weighted average pricing advantage

Fluctuations in prices are smoothed out, making it easier to use the data for decision making.

Weighted average pricing disadvantage

The resulting issue price is rarely an actual price that has been paid, and can run to several decimal places.

What is inventory control?

The regulation of inventory levels, including valuing issued inventory.

What are bin cards?

Manual records kept in the stores department, detailing inventory items, codes, units, and location.

What are stores ledger accounts?

Accounts similar to bin cards but recording cost details and maintained by a clerk in the costing department.

What is a perpetual inventory system?

Ensures that every issue and receipt of inventory is recorded as it occurs so that there is a continuous clerical record of the balance of each item of inventory.

Give four examples of effective Storekeeping practice.

Do not store heavy items on high shelves, dangerous items above eye level or items liable to be damaged by flood on low shelves.

Why are inventory codes used?

To unambiguously identify each item and avoid confusion caused by different descriptions.

What document starts the process for materials to be moved from stored to production.

Production will complete a materials requisition note and send to warehousing.

What is a materials returned note?

A document used when excess materials are returned to store.

What is a materials transfer note?

A document that enables materials already issued but not required for one job to be used for another job in progress.

What is stocktaking?

Counting the physical inventory on hand and checking against clerical records.

What is continuous stocktaking?

Involves regularly counting and checking a number of inventory items to reduce errors.

Why might there be inventory discrepancies?

Supplier delivers a different quantity of goods, incorrect inventory issued to production, clerical errors, theft etc.

What are inventory costs?

Purchase costs, ordering costs, holding costs and costs of running out of inventory.

What are ordering costs?

Costs incurred when inventories are ordered, such as clerical costs and transport costs.

What are holding costs?

Costs of storing inventories, including storage costs, interest charges, and insurance costs.

Name three stockout costs.

Lost contribution from lost sales, loss of future sales, cost of production stoppages.

Name reasons for holding inventories.

To take advantage of bulk purchasing discounts, meet future shortages and meet expected production requirements.

How are inventory control levels determined?

Inventory usage and delivery times from past.

How is the reorder level determined?

Reorder level = maximum usage x maximum lead time.

How is the minimum level determined?

Minimum level = reorder level – (average usage x average lead time).

How is the maximum level determined?

Maximum level = reorder level + reorder quantity – (minimum usage x minimum lead time).

What is Economic Order Quantity (EOQ)?

Order quantity that minimises inventory costs.

Give five details that would be on a computerised inventory file.

Inventory code, Description, Supplier code, Cost price per item and Location.

Give three examples of reports a computerised inventory system might be able to generate.

Daily listings, inventory lists and supplier analysis.

What is a bill of materials facility?

Allows assembly records containing details of the various assemblies that make up the final product to be compiled.