1. MAF 220 – COST
ACCOUNTING I

2.  Are the things needed to produce
output/ products
 Major part of total cost & is one of the
most important assets

3.  Is a system to ensure that material is
purchase at the right quality for the right
quantity at the right time & price
 Needed to:-
› Prevent wastage, production delay &
obsolescene

4. PRODUCTION
DEPT
PURCHASING
DEPT
RECEIVING
DEPT
INSPECTION
DEPT
STORE
DEPT
SUPPLIER
MRN
PRN
Quotation
Purchase
order
Invoice
Delivery
order
GRN
IN
MIN

5.  Handling and keeping records of
materials in store
 Centralized store = HQ buys n handles
material
 Decentralized store= BRANCH buys n
handles material

6.  Objectives:
› Speedy receipts & issue of materials
› Labelling material for identification
› Maintain correct level of stock
› Efficient use of storage space

7.  To maintain optimum level of stock in
hand
 To control investment in stock
 Method:
› ABC analysis
› Stock levels
› EOQ
› Stock recording
› Stock taking

8.  Stocks are analyzed according to their
value
Category Type of value Control
A Highest value Maximum
B Medium value Medium
C Lowest value minimum

9.  Control & monitoring can be done by
using the formulas:
› Re-order level
› MAX stock level
› MIN stock level
› R-order qtty
› Ave. stock level
› Stock turnover ratio

10.  Enables an org to control investments in
materials
 Is used to determine how much material
should be order
 Minimizes the total cost of stock

11.  Equation
2DO
C
 Tabulation
› Consists of several order size, where the
min total cost is EOQ
 Graph
O
C
TC
EOQ

12. EOQ = √ 2DO⁄C
D= total demand
O = ordering cost
C = carrying cost

13.  At reorder level, stock will be ‘0’ and
when replenished the stock will be the
maximum level, Q.
 At constant demand, average stock is
Q/2.
 If the total annual demand is D and the
order quantity is Q, then the number of
orders for stock in a year will be D/Q.
 If the cost per order is O, then the total
ordering costs will be D/Q xO

14.  TOTAL COST = (Q/2)C +(D/Q)O

15. You are required to determine the EOQ
based on the following data:
Forecasted demand = 2,000 units per
month
Ordering cost = RM450.00
Unit costs = RM10.00
Carrying cost = RM15% per annum

16.  Perpetual inventory system
› Reflect physical movement of stock & the
balance at all times
› Is checked against continuos stock taking
 Periodic inventory system
› Recording are done by doing stock taking at
a given time

17.  To charge to production on a consistent
and realistic basis of the cost of materials
used and also to provide a satisfactory
basis of valuation for inventory on hand

18.  3 methods to value stock in hand
› LIFO
› FIFO
› WAM

19.  Materials are used in chronological order
 Ensures materials are issued at actual
cost
 Closing stock valuation is higher

20.  The latest materials received are used
first.
 Ensures materials are issued at actual
cost
 Lower valuation for closing stock

21.  Average price is used
 Price is calculated by dividing the total
cost of material in stock by the total
quantity of material in stock.
 A new price needs to be calculated
each time new material are received

22.  Calculate the value of 30 units of material A
closing stock using:
a) FIFO method
b) LIFO method
c) Weighted Average method
1 july opening stock 20 units @rm14
4 july receipts 40 units @rm15
14 july receipts 50 units @rm18
10 july issues 40 units
17 july issues 40 units

23.  Attempts to overcome EOQ. It affects the
way purchasing is carried out.
 It requires:
› The buyer to identify the suppliers
› The buyer enter into a contract with the suppliers
to supply materials move frequently
› Buyer give a copy of production schedule to
supplier
› Supplier carries out quality control
› Supplier delivers just in time
› Materials used in production immediately

24.  Reducing waste and increasing
efficiency of the material usage
 Reduce or eliminate inventories at every
stage of production

25.  Key features:
› Smooth, uniform production rate
› Pull method of production
› Purchase in small lot size
› Quick inexpensive setups
› High quality of materials
› Effective preventive maintenance
› Teamwork
› Multi skilled workers