Here is a term paper on ‘Stores Ledger’ for class 9, 10, 11 and 12. Find paragraphs, long and short term papers on ‘Stores Ledger’ especially written for school and college students.
Term Paper on Stores Ledger
Term Paper Contents:
- Term Paper on the Introduction to Stores Ledger
- Term Paper on Bin Card
- Term Paper on the Issue of Material
- Term Paper on the Treatment of Surplus Materials
- Term Paper on the Methods of Pricing of Material
- Term Paper on the Types of Material Losses
Term Paper # 1. Introduction to Stores Ledger:
ADVERTISEMENTS:
Store ledger is another stores record kept in the costing department. It is a document showing the quantity and value of materials received, issued and in balance at the end. One stores ledger is allotted to each component of material. Entries are made in this ledger by the costing clerk with reference to goods received note, material requisition note, material returned note etc.
It is very similar to the bin card except it contains additional columns showing the prices and value of materials received, issued and balance in hand. It gives the value of closing stock at any time. Besides, a store ledger contain information like name of the material, code number, different stock levels etc.
Specimen Store Ledger:
Term Paper # 2. Bin Card:
Bin is a place where materials are kept in. It may be a rack, container, shelf or space where stores are kept. Bin card is a document showing the particulars of materials kept in the bin. It is a document attached to the bin disclosing the quantitative details of materials received, issued and the closing balance. A bin card is used for each item of material. Each receipt and issue is recorded on the bin card in a chronological order and the latest balance is shown after each receipt and issue.
Bin card is maintained by the store keeper. It indicates information like different stock levels. No, name of material, material code number, stores ledger folio number, quantity of materials received, issued and the balance in hand.
ADVERTISEMENTS:
Specimen Bin Card:
Difference between Store Ledger and Bin Card:
Term Paper # 3. Issue of Material:
ADVERTISEMENTS:
Materials are kept in stores so that the store-keeper may issue them whenever these are required by the production departments. But a store-keeper must not issue materials unless a properly authorised material requisition is presented to him.
i. Material Requisition:
The storekeeper should always issue the material on proper authority to avoid the misappropriation of material. This authority is usually given by the foreman of the production department on a form known as material requisition.
ADVERTISEMENTS:
ii. Bill of Material:
A bill of materials gives a complete list of all materials required with quantities for a particular job, order or process. Thus, all materials required for a particular job, order or process are listed by the production department on a single document.
This bill serves the purpose of material requisition and all materials listed on the bill are sent to the production department. A bill of materials should be prepared if the job is of non-standardised nature so that reasonable estimate of all materials required may be made by the production department before the job is started.
Term Paper # 4. Treatment of Surplus Materials:
ADVERTISEMENTS:
i. Return of Surplus Material:
Sometimes, excess materials may be issued to production departments. When these materials are returned to stores a Material Return Note is to be prepared by the department which has the excess materials. Generally, three copies are prepared. One copy is retained by the department which is returning the material.
Two copies are sent to the store keeper. The store keeper keeps one copy for making entries in the Bin card and the second copy is sent to the cost office for making entries in the stores ledger and for giving credit to the job where the material is in excess.
ii. Transfer of Surplus Materials:
ADVERTISEMENTS:
Transfer of excess material from one job to another job is to be avoided as far as possible. This is because record for transfer may not be made and actual material cost of jobs may be inaccurate.
However, sometimes the material may be allowed to be transferred to avoid delays and handling charges. The transfer is to be allowed only with preparation of material transfer note so that the cost of material transferred is debited to the job receiving the material and credited to the job transferring the material.
Term Paper # 5. Methods of Pricing of Material:
A number of methods are used for pricing material issues. Each method has its own advantages and disadvantages. As such, it is impossible to say which method is the best. Each organisation should choose a particular method best suited to it. While choosing a method, it is necessary to see that the method chosen is simple, effective and realistic. At the same time, it is equally necessary to consider the effect of the method on production cost and inventory valuation.
The following are the different methods of pricing the material issues:
1. First in First Out Method (FIFO):
ADVERTISEMENTS:
Under this method, materials are issued in the order in which they are received in the store. It means that the material received first will be issued first.
Advantages:
(a) This method is simple to understand and easy to operate.
(b) The closing stock is valued at the current market price.
(c) Since issues are priced at cost, no profit or loss arises from pricing.
(d) This method is more suitable in times of falling prices.
(e) Deterioration and obsolescence can be avoided.
Disadvantages:
(a) When prices fluctuate, calculation becomes complicated. This increases the possibility of clerical errors.
(b) During the period of price fluctuations, material charged to jobs vary. Therefore, comparison between jobs is difficult.
(c) During the period of rising prices, product costs are under stated and profits are overstated. This may result in payment of higher dividend out of capital.
2. Last in First Out Method (LIFO):
This method is opposite to FIFO. Here materials received last are issued first. Issues are made from the latest purchases.
Advantages:
(a) Issues are based on actual cost.
(b) Issue price reflects current market price.
(c) Product cost will be based on current market price and hence will be more realistic.
(d) There is no unrealized profit or loss.
(e) Simple to operate if purchases are not many and prices are steady or rising.
(f) When prices are raising this method is helpful in preparation of quotation or estimates.
Disadvantages:
(a) This method involves considerable clerical work.
(b) Under felling price, issues are priced at lower prices and stocks are valued at higher rates.
(c) Stock of material shown in the balance sheet will not reflect market price.
(d) Due to variation in prices, comparison of cost of similar job is difficult.
(e) This method is not accepted by the income tax authorities.
3. Simple Average Method:
The simple average is determined by adding different prices of materials in stock and dividing the total by number of prices. Quantity purchased in each lot is ignored.
For Example: 20 units are purchased at Rs.10 30 units are purchased at Rs. 11
40 units are purchased at Rs. 12
Advantages:
(a) This method is simple to understand and easy to operate.
(b) It reduces clerical work.
(c) It is suitable when price are stable.
Disadvantages:
(a) It does not take into account the quantities purchased.
(b) The value of closing stock becomes unrealistic.
(c) Material cost does not represent actual cost price.
(d) When prices fluctuate, this method will give incorrect result.
4. Weighted Average Method:
This is an improvement over the simple average method. This method takes into account both quantity and price for arriving at the average price. The weighted average is obtained by dividing the total cost of material in the stock by total quantity of material in the stock.
Advantages:
(a) It gives more accurate results than simple average price because it considers both quantity as well as price.
(b) It evens out the effect of price fluctuations. All jobs are charged a average price. So, comparison between jobs is more easy and realistic.
(c) It is suitable in the case of materials subject to wide price fluctuations.
(d) It is acceptable to income tax authorities.
Disadvantages:
(a) Stock on hand does not represent current market price.
(b) When large number of purchases is made at different rates, the calculation is tedious. So, there are more chances of clerical error.
(c) With some approximation in average price, there will be profit or loss due to over or under charging of material cost to jobs.
Term Paper # 6. Types of Material Losses:
The material requirements of production are issued on the basis of material requisitions. The output is obtained along with wastage, scrap, spoilages and defectives. The accurate cost of output can be computed after taking the losses into account.
Losses in the form of waste, scraps, spoilage and defectives are inherent and inevitable with any manufacturing activity. These losses can be controlled through adequate reporting and responsibility accounting. Standard for each type of loss is fixed. Actual are compared and action is to be taken by the management to control the abnormal losses, based on the variance.
1. Waste:
Waste is inherent in any manufacturing activity. Waste is a part of raw material lost in the process of production having no recoverable value. Waste occurs invisibly in the form of evaporation or shrinkage. It can be visible and solid also. Examples of visible wastes are gases, dust, valueless residue, etc. Sometimes disposal of waste entails additional expenditure. Example: atomic waste. Loss in the form of waste increase with cost of production.
Control of Waste:
A waste report is prepared periodically. The actual waste is compared with standard waste and remedial action is taken to control abnormal waste.
Accounting Treatment:
Waste has no value. The accounting treatment differs according to waste being normal or abnormal.
(i) Normal Waste:
This is the inherent waste while manufacturing. It is in the form of evaporation, deterioration etc. The total cost of normal waste is distributed among the good units of output.
(ii) Abnormal waste:
The abnormal waste is transferred to costing profit and loss A/c to avoid fluctuation in production cost.
2. Scrap:
Scrap is the residue from certain manufacturing activities usually having disposable value. It can also be the discarded materials which can fetch some income. Examples of scrap are outlined material from stamping operations, filings, Saw dust, short lengths from wood working operations, sprues and ‘flash’ from foundry and moulding processes. Scrap may be sold or reused.
Control of Scrap:
Scrap is controlled by fixation of standards for scrap, fixation of department wise responsibilities for scrap, etc. Keeping up proper records of scrap and periodical reporting helps in control of scrap. Actual scrap is compared with standard scrap. Suitable action is taken for excessive actual scrap over standard scrap.
Accounting Treatment:
(i) Sale value of scrap credited to profit and loss A/c:
The sale value is credited to profit and loss account as other income. The cost of output is inclusive of scrap cost. This method of accounting treatment is adopted when the value is negligible.
(ii) The Sale value credited to overhead or material cost:
The sale value is reduced with selling cost of scrap and the net sale value is deducted from factory overhead or from material cost. This method is adopted when several jobs are done simultaneously and it is not possible to segregate the scraps job wise.
(iii) Crediting the sale value to the Job or process in which Scrap arises:
The sale value of scrap is credited to the job or process concerned from which the scrap has arisen. This method is followed when identification of scrap with specific jobs of processes is easy.
3. Spoilage:
Spoilage occurs when goods are damaged beyond rectification. Spoilage is disposed off without further processing. Spoilage cost is the cost upto the point of rejection less sale value.
The method of sale of spoilage depends on the extent of spoilage. Some of the spoilage is sold as seconds if the extent of damage is less; rest may be sold as scrap or treated as waste.
Control of Spoilage:
Spoilage is controlled through proper reporting about the extent of spoilage. Standards are fixed as a percentage on production. Actual spoilage is compared with standard and variance is recorded. If the actual spoilage is more than the standard, suitable action is suggested to control it.
Accounting Treatment of Spoilage:
Accounting treatment depends on whether the spoilage is normal or abnormal. Normal spoilage is borne by good units of output since it is inherent with production and it happens even under efficient conditions. Abnormal spoilage is avoidable under efficient conditions. The cost of abnormal spoilage is charged to profit and loss account.
4. Defectives:
It is a part of production which can be rectified and made into good units with additional cost. The defective work occurs due to raw materials of inferior quality, bad planning and poor workmanship. Defective units are rectified with additional cost of material, labour and overheads and sold as ‘first quality’ or ‘seconds’.
Control of Defective:
As in the case of other losses, defectives are controlled by accurate and periodical reports. Standards are fixed for defectives. Actual defective work is compared with standards. If actuals are more than the standards remedial action is taken to control it.
Accounting Treatment of Defectives:
The accounting treatment depends on the extent of defective production. If it is normal being inherent with production, it is identified with specific jobs. The cost of rectification is charged to specific jobs. If the cost is not treated with a job, the cost of rectification is treated as factory overhead. If the defective work is out of abnormal circumstances the cost of rectification is transferred to profit and loss account.
5. Obsolete, Slow Moving and Dormant Stocks:
These items are part of inventory. They need suitable and timely action on the part of the management to avoid occurrence of loss in due course and to prevent locking up of working capital.
(i) Obsolete Stocks:
They are those stocks in the inventory which have been lying unused due to change in product process and design or method of manufacturing. They are generally out of date.
(ii) Slow Moving Materials:
They are items in stock used at long intervals and thus lying idle for long periods.
(iii) Dormant Stocks:
They are items in stock not at all in use for a significant period of time.
The store keeper should highlight such items in his periodical reports so that the management may try to dispose them off at any price; or clear them out to save space in the stores; exercise caution in future purchase of such items of materials.