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Chapter 6Material & Labour
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Topics covered in this lecture
Management of materials
Valuation of Materials
Labour control
Labour remuneration
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Management of Materials
Why?
Net Working Capital:
- Debtors Management
- Creditors Management
- Trading Stock / Inventory / Materials
Management• N.B. for decisions relating to management
decisions
•
Cost Management
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Management of Materials
4 Basic Activities
Anticipating materials requirements
Sourcing and obtaining materials
Introducing materials into the organisation
Monitoring the status of materials as a
current asset The ultimate goal of all of this is to
maximise the profit of the company
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Stock Piling – Categorisation of
stock Normal Stock
Buffer Stock – usage is erratic
Strategic stock Speculative Stock
Stock-in-transit
Economical and Technical Stock
Over-stocking and under-stocking
Average Stock
Maximum Stock
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Acquisition of Stock
What is required?
How much is required? ( Do I require
safety stock) When is it required?
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Safety Inventory
Maximum usage x ( maximum lead time – normal lead time)
Example:
- Average weekly usage = 20 units
- Order period = 2 weeks- Order size = 80 units
- Maximum order period = 3 weeks
- 20 units ( 3 weeks - 2 weeks)
- Safety stock = 20 units
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Order Point
The level of inventory reached before placing a new order is knownas the order point
The order point can be calculated as follows:
( Order period x normal usage) + safety inventory Based on above example:
Order point = ( Order period x normal usage) + safety inventory
( 2 x 20) + 20
= 60 units
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Determining the order size
Economic order quantity
Optimal order size that needs to be placed
EOQ = √2 FS / CP
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Ordering the inventory
Procurement function within a business
Negotiate payment terms, check reliability,lead times, discount policies, etc.
Written orders should be placed with PO
number to serve as proof and authorisationhas been given for the purchase with allrelevant details
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Storage of Inventory
Goods Received Voucher
Storage in a safe place – usually a warehouse
The layout of the warehouse is N.B. should not inhibit or hinder the
flow of inventory The following factors should be taken into account when the layout
of the factory is considered:
Allocation should be done according to a predetermined classifcationpolicy
Safety aspects should be considered
Unique characteristics of each product must be taken into account
Fast moving inventory should be kept in a place that is easilyaccessible
Entrances should be kept to a minimum
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Issuing of Stock
Importance of stock requires tight andformal processes
Stock should only be issued on the basis of a requisition
Provides authorisation for the storekeeper
Source document for accounting entries
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Recording Stock Movements
and Valuation of Inventory 2 Methods of recording stock movements:
Perpetual Inventory Method – maintains
on-going records of stock levels Periodic Inventory Method – no on-going
records held
Stock counts done – Stock and Purchasesaccounts
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Stock Valuation Methods
LIFO – Last in first out
FIFO – first in first out
Weighted average cost
Standard Price
Market Price Method