1. The two major objectives of materials control are (1) physical control or safeguarding the materials and (2) control of the investment in materials.
2. The controls established for safeguarding materials include limiting access to the materials area, segregating the duties of employees involved with materials, and assuring that materials recordsare being maintained accurately.
Limiting access involves placing inventories in storage areas that can be entered only by authorized personnel and restricting the release of any material or finished goods to individuals who have properly authorized documents. Control procedures that limit access to work in process areas should be established within each department or production station.The segregation of duties involves assigning different people to different functions. Employees assigned to purchasing should not also be assigned to receiving, storage, or recording functions, etc.
The accurate recording of purchases and issuances of materials facilitates comparing the recorded materials on hand to the actual materials on hand. If a substantial difference between therecorded and actual quantities is discovered, it can be quickly determined and investigated.
3. Management should consider production and working capital requirements along with alternative uses of available funds which might yield a greater return. Consideration should also be given to the cost of materials handling, storage, and insurance protection against fire, theft, and other casualty losses.In addition, the possibility of loss from damage, spoilage, and obsolescence should not be overlooked.
4. Order point is the time to place an order for additional material because the level of stock has reached a predetermined minimum established by management.
5. In order to determine an order point, the information available should include the:
(1) anticipated daily usage of thematerial,
(2) lead time interval, and
(3) safety stock required.
The anticipated usage requirement should be founded upon the number of units expected to be completed daily and the quantity of material each completed unit will require.
The lead time interval involves the typical period of time required between placing the order and receiving the shipment.
The safety stock is theminimum stock on hand needed to prevent running out of stock due to errors in calculations of usage, delivery delays, poor quality of merchandise received, and so on.
6. The economic order quantity (EOQ) is the calculated size of an order which minimizes the total cost of ordering and carrying the inventory over a specified period of time. It is a function of the cost of placing an order, thenumber of units required annually, and the carrying cost per unit of inventory
7. The cost of placing an order, the number of units required annually, and the annual carrying cost per unit in inventory are the items needed to calculate the economic order quantity.
8. The cost of an order includes the salaries and wages of employees who purchase, receive, and inspect materials; the expenses incurredfor telephone, fax usage, postage, and forms; and the accounting and record keeping associated with inventories.
9. The carrying cost of materials inventory includes the cost of storage and handling; the amount of interest lost on alternative investments; the losses due to obsolescence, spoilage, and theft; the cost of insurance and property taxes; and the cost of maintaining accounting recordsand controls over the inventory.
10. a. Purchasing agent duties include:
(1) Coordinating materials requirements with production to prevent delays in production due to inadequate materials supply on hand.
(2) Compiling and maintaining a vendor file from which materials can be promptly obtained at the best available prices. (Note to Instructor: You may take this opportunity...