Perpetual Inventory System Advantages and Disadvantages

This note shows the details of materials issued for the product of cost centre or the cost centre which is to be charged with cost of materials. Continuous stock taking means the physical checking of the records i.e. Bin cards and store ledger with actual physical stock.

The nature of business and the type of production process. Physical stocks can be counted and book balances adjusted as and when desired without waiting for the entire stock-taking to be done. Desirable- Items under this category are optional in nature, unavailability does not cause any production or efficiency loss. While deciding on the level of inventory, a trade-off between the stock out cost and carrying cost is made so that overall inventory cost can be minimized. Carrying Cost – It represents cost of carrying average inventory on annual basis. The cards are liable to be smeared with dirt and grease because of proximity to material and also because of handling materials.

Stores ledger

Computerized perpetual inventory systems are useful to managers in controlling and managing inventory. In case of imported material, the cost of the material consists of a basic price, customs duty, clearing charges, transport chares, etc. Bin Card is kept attached to the bins inside the store as to enable to identify the stock.

difference between bin card and store ledger

Generally, it is prepared by the production department and materials are withdrawn on the basis of material requisition list or bill of materials. If no material list has been prepared, it is desirable that the task of the preparation of material requisition notes be left to the planning department or by the department requires the materials. The note is shared with Store and Cost/ Accounting department. Fixation of the various stock levels and checking of actual balances in hand with these levels assist the store keeper in maintaining stocks within limits and in initiating purchase requisitions for correct quantity at the appropriate time.

This method is considered suitable in times of falling price because the material cost charged to production will be high while the replacement cost of materials will be low. But, in the case of rising prices, if this method is adopted, the charge to production will be low as compared to the replacement cost of materials. By careful observation, timely identification and adoption of inventory management techniques such as maintenance of minimum level or just in time approach, one can manage slow moving and non-moving inventories.

Weighted Average Price = Total cost of material in stock / Total quantity of material in stock

If the balance appears to be inadequate an Alteration to Contract Allotment (S. 1428) is called for. It is required that each product of a cost centre should be given a unique code number so that the direct material issued for production of particular product of a cost centre can be collected against the code number of that product. Abnormal- The scrap account should be charged with full cost. The credit is given to the job or process concerned.

  • The problem of accounting for defective work is in relation to the costs of rectification or rework.
  • It is calculated for those items which can be utilized for multiple orders or products.
  • Conversely, in periods of falling prices, the FIFO method produces lower profits and results in lower taxes because they are derived from a higher cost of goods sold.
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  • “Two Bin System” is supplemental to the record of respective quantities on the bin card and the stores ledger card.

A perpetual inventory system is usually supported by a programmed of continuous stock-taking. In other words, perpetual inventory system means the system of records, whereas continuous stock-taking means the physical checking of actual stock with the records. Abnormal- Material Cost of abnormal defectives are not included in material cost but treated as loss after giving credit to the realisable value of such defectives. The material cost of abnormal loss is transferred to costing profit and loss account.

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The profit or loss in the scrap account, on realisation, will be transferred to the Costing Profit and Loss Account. Such returns are entered in the receipt column at the price at which they were originally issued, and the materials are kept in suspense account, to be issued at the same price, against the next requisition. When materials requisitioned for a specific job or work-in progress are found to be in excess of the requirement or are unsuitable for the purpose, they are returned to the stores. There are two ways of treating such returns.

Thus, the cost of goods produced will be related to the trend of the market price of materials. A bin card is a quantitative record of receipts, issues difference between bin card and store ledger and closing balances of items of stores. Each item is accompanied by a separate bin card. The bin card is posted as and when a transaction takes place.

Purchase requisition note may either be originated by the stores department in connection with regular materials or by the production planning or other technical departments in respect of special materials. 1.Detention charges/FineDetention charges/fines imposed for non-compliance of rule or law by any statutory authority. It is an abnormal cost and not included with cost of Purchase2.DemurrageDemurrage is a penalty imposed by the transporter for delay in uploading or offloading of materials.

Posting in the issue column when it should have been posted in the receipts column. The Economic Order Quantity also influences the maximum level. The verification is conducted round the year to cover each item of stock twice or thrice. For each kind of material, an inventory tag is attached to the bin. This tag is called Bin Card.

Defectives which cannot be brought up to the quality standards are known as rejects. The rejects may either be disposed- off or re-cycled for production process. Format of a shop credit note may vary on the basis of industrial peculiarities, management information system and accounting system in place. Unless this is done, the surplus material may be misappropriated or misapplied to some purpose, other than that for which it was intended. The material cost of the job against which the excess material was originally drawn in that case, would be overstated, unless the job is given credit for the surplus arising thereon. Possible to know which is fast moving and which is slow moving.

difference between bin card and store ledger

A company has 4500 items of stores. In a year of 300 working days. 15 items should be counted, weighed or measured daily so that all 4500 items are verified physically once a year and compared with the Bin card balances. After the receipt of materials, inspection of the material is done. Inspection of materials means that the quantity actually received is compared with the quantity ordered; also the quality of the material is inspected.

Businesses that sell a large number of low‐cost items often find the maintenance of perpetual inventory records for all types of inventory too costly and time‐consuming to be practical, unless they have access to a computerized inventory system. If posting of the transaction has been made on wrong bin card or stores ledger sheet. Simple average price is calculated by adding all the different prices and dividing by number of such prices. It does not take into account quantities of material while computing average price. For instance, when 100 units are Purchased @ 9 Rs per unit and 900 units are purchased @ 7Rs per unit.

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Operation of a system of internal check so that all transactions involving materials, supplies and equipment purchases are properly approved and automatically checked. Scraps are the materials which are discarded and disposed-of without further treatment. Generally, scrap has either no value or insignificant value.

Differences in stock arise occasionally. The difference in the stock verification sheet should be verified with the bin card balance. There may be differences between the Stores Ledger and the Bin Card. But the Bin Card reflects the stock in hand and hence no adjustment is needed. The balance in Stores Ledger and Bin Card should be reconciled first.

Differentiate between Bin Card and Stores Ledger.

The Contract Allotment Form (S. 629) or the Estimate Advice Form (S. 634) should be posted under the name of the receiving depot and the new balance of over stock calculated and entered in the adjoining ‘balance column’. Card, the error should be corrected by a write back entry giving reference to the ledger card in which the entry has since been correctly posted. In only such cases can an entry be made with- out a supporting voucher. All such correction should be made under the initials of the clerk-in- charge of the Ledger Section. It makes available correct figures for claim to be ledged with the Insurance company for loss on account of stock destroyed by fire.

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