1. F2 Management Accounting
Chapter 6
Accounting for materials
谢欢 潘静妍 彭阳
陈伟良

2. Part 1 What is inventory control?
Inventory control includes the functions of inventory ordering and purchasing, receiving goods into store, storing and issuing inventory and controlling levels of inventory.
（This chapter will concentrate on an inventory control system for materials.)

3. Part 2 How can we control inventory? The issue of materials
The ordering and receipt of materials
The issue of materials
The storage of materials

4. The ordering and receipt of materials
stores department
purchasing
department
storekeeper
supplier
accounts department

5. Materials Requisition Note
The issue of materials
Materials Requisition Note
Materials Transfer Note
&
Materials Returned Note

6. Recording inventory levels
The storage of materials
Bin cards
Recording inventory levels
stores ledger accounts
Free inventory is really available for future use.

7. The storage of materials
The inventory count
Periodic stocktaking is a process all inventory items are physically counted and valued at a set point in time.
Continuous stocktaking is counting and valuing selected items at different times on a rotating basis.

8. Part 3 Inventory costs Purchase costs (eg: one of the largest cost)
Holding costs
(eg: costs of stroage and stores operation)
Ordering costs
(eg: transport costs, production run costs)
costs of running out inventory(stockout costs)
(eg: costs of production stoppages, loss of customer goodwill)

9. three critical control levels
Inventory control levels
Part 4
Reorder level=maximum usage × maximum lead time
three critical control levels
minimum level=reorder level - (average usage × average lead time)
maximum level=reorder level + reorder quantity - (minimum usage × minimum lead time)
Average inventory=safety inventory + ½ reorder quantity

10. Part 5 Economic order quantiy (EOQ)
EOQ is the order quantity which minimises inventory costs.
Annual costs
(＄)
Total costs
Holding costs
ordering costs
Ordering quantity
EOQ=
EOQ

11. Part 6 Economic batch quantiy (EBQ)
EBQ is similar to EOQ and is used when resupply is gradual.
EBQ=

12. Part 7 Accounting for material costs
In the material control account:
inventory increases →→ a debit entry
inventory decreases →→ a credit entry …
account
debit
credit 1 2 1 2 … …
amounts
the same amounts

13. Part 8 Inventory valuation Valuation of inventory
at the lower of cost and net realisable value
The correct pricing of issues
determined on a consistently applied basis

14. Part 9 Calculate the value of closing inventory and material issues
FIFO (first in, first out)
LIFO (last in, first out)
Average methods (cumulative weighted average pricing)

15. FIFO assumes that materials are issued out of inventory in the order in which they're delivered into inventory: issues are priced at the cost of the earliest delivery remaining in inventory.
LIFO assumes that material are issued out of inventory in the reverse order to which they were delivered: the most recent deliveries are issued before earlier ones, and issues are priced accordingly.

16. Cumulative weighted average pricing (AVCO) calculates a weighted average price for all units in inventory.
Periodic weighted average pricing method calulates an average price at the end of the period, based on the total purchases in that period.

17. THANK YOU
谢欢 潘静妍 彭阳
陈伟良