MATERIAL COST

Meaning of Material Cost

 Material cost is the significant constituent of the total cost of any product. It constitutes 40% to 80% of the total cost. The percentages may differ from industry to industry. But for manufacturing sector the material costs are of greatest significance. Inventory also constitutes a vital element in the Working Capital. So it is treated as equivalent to cash. Therefore the analysis and control on Material Cost is very important.

Objectives of Material Control System

Material Control: The function of ensuring that sufficient goods are retained in stock to meet all requirements without carrying unnecessarily large stocks.

The objectives of a system of material control are as following:-

(a) To make continuous availability of materials so that there may be uninterrupted flow of materials for production. Production may not be held up for want of materials.

(b) To purchase requisite quantity of materials to avoid locking up of working capital and to minimize risk of surplus and obsolete stores

(c) To make purchase competitively and wisely at the most economical prices so that there may be reduction of material costs

(d) To purchase proper quality of materials to have minimum possible wastage of materials

(e) To serve as an information centre on the materials knowledge for prices, sources of supply, lead time, quality and specification