Material in cost accounting

In cost accounting, material is defined as the part of inventory. Basically, material and raw material are used for same purpose. This is main part of total cost of production. It can reduce or increase according to the fluctuation in production. So, this is very flexible and controllable source of production. For making furniture, wood is the material. 60% to 70% proportion in the total cost of production will be material cost.  So, it is very necessary for producing any new product. Its cost will reflect the profit of company directly. This input can be stored and transported from one place to another.

To record and control over the material cost is necessary because

1. Conciliation For Proper Quality with Price of Material

If company buys high quality material, its price will be high. If company buys low quality material, its price will less. Company has to compromise quality with price of material. Quality will not less than minimum standard. At that level, company has to pay price of material.

2. Purchase at Competitive Price

If company is selling the products in competitive market, its price must be same with other competitors. It will be only possible, if company will buy products at competitive price. For buying competitive price, company has to check past records of purchased material and compare prices with other competitors.

3. Continue Supply of Material

It is main objective and feature of material  that for continue operating of machinery, it is very necessary that we should have to continue supply of raw material for production. Without, this our fixed cost will be increased. That is not good. So, it is needed that store keeper must record when he issues the goods to production department. He also alerts to purchase department for new buying of material.

4. Equilibrium in the Stock of Material

Over-stocking and under-stocking both are harmful for concern. Equilibrium in stock of material means optimum stocking of materials. It can be only possible, if company records and control the stock and use different techniques for measuring level of stock.

5. To Reduce the Wastage and Losses

To reduce normal and abnormal wastage and losses of material in production should be also the aim of material record and control.