COST ACCOUNTING (ACCT 403)

Department of Accounting
University of Ghana Business School
Prof. William Coffie
Accounting For Materials/Inventory
Lesson Objectives

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Inventories

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Operational / Trading Inventory

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Non-Operational / Non-Trading
Inventory

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Costs Associated with
Materials/Inventory

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Out of Pocket Costs

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Material Cost

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Components of Material Cost

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Why Organizations Keep Inventory

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Why Inventory Management ?

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Inventory Management cont’d …

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Components of Inventory
Management

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Why are documents necessary?

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Documents Used in Accounting for
Materials

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Accounting

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 OK COMPANY LTD
PURCHASE REQUISITION FORM

Department : No.:
To be delivered at: Date:
Please purchase the items listed below
Quantity
Item No. Code No. Description Remarks
Required

For use of Purchase Department Only

Purchase order No: Requisition by:

Supplier: Checked by:
Delivery date: Approved by

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Documents Used in Accounting for
Materials cont’d …

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Accounting

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 OK COMPANY LTD
PURCHASE ORDER

Supplier: No.:
To be delivered at: Date:

Please supply the following materials subject to the terms and conditions
given on the reverse side of this purchase order
Quantity Description Per Unit Price Total Amount

Please quote Purchase Order No. on all advice notes and invoices

Place of delivery:
Delivery date:
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Terms of payment: Purchase manager:
Accounting

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Documents Used in Accounting for
Materials cont’d …

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Accounting

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 OK COMPANY LTD
GOODS RECEIVED NOTE

Supplier: No.:
Advice Note No.: Date:
Purchase Order No.:

No. of Gross
Quantity Description
Packages Weight

Inspection Report
Quantity Quantity Reasons for Rejection
passed Rejected

Dept. of
Accounting Received by:
Inspected by: Date:

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Documents Used in Accounting for
Materials cont’d …

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 OK COMPANY LTD
MATERIAL REQUISITION FORM

Materials required for Job No.: No.:

Department: Date:

Cost Centre
Quantity Description Code No. Per Unit Total
Cost Amount

Bin no.: Issued by:

Stores ledger folio: Received by:
Dept. of
Accounting
Priced by:

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Documents Used in Accounting for
Materials cont’d …

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 OK COMPANY LTD
STORES ISSUE VOUCHER

Job No.: No.:

Department: Date:

Cost Centre
Item
Quantity Description Code No. Remarks Per Unit Total
No.
Cost Amount

Prepared by.: Date of Issue:

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Accounting

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Documents Used in Accounting for
Materials cont’d …

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 OK COMPANY LTD
MATERIALS RETURN NOTE

Credit Job No.: No.:

Department: Date:

Cost Centre
Quantity Description Code No. Per Unit Total
Cost Amount

Bin no.: Received by:

Stores ledger folio: Priced by:
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Accounting
Authorized by:

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Definitions

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Advantages of Coding

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Principles of Coding

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Systems of Coding

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Factors Influencing Investment in
Inventory

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What is Inventory Control?

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Levels of Inventory Control

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Objectives of Inventory Control

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Techniques for Inventory Control

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Inventory Control Levels

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Inventory Control Levels cont’d …

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Accounting

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Inventory Control Levels cont’d …

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Inventory Control Levels cont’d …

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Inventory Control Levels cont’d …

2 xACxOc
EOQ 
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Illustration

Alomo Gyata uses 4,000 bags of rice a year for her

Waakye business. It costs GH¢10 to hold one bag of rice
in store for one year. The cost of ordering each
consignment of rice is GH¢200. Alomo uses between 100
and 600 bags and it takes the suppliers between 1 and 3
months to deliver the rice ordered. Alomo is cost
conscious and has contacted you as consultant for an
advice on stock/inventory control. Using the above
information provided by her, calculate for her guidance
the four (4) critical stock control levels.
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Economic Order Quantity (EOQ)

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Determination of EOQ
• Mathematical Method (as per the ROQ)
• Graphical Method

Tc Hc
Cost Oc

EOQ

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Quantity/Order size
Accounting

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Determination of EOQ cont’d …

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Illustration

• A company purchase raw materials at a cost of GH¢16 per unit. The annual
demand for the raw material is 25,000 units. The holding cost per unit is GH
¢6.4 and the cost of placing an order is GH¢32. Determine the economic
order quantity using the:
• mathematical method
• Tabular method if it can purchase for order sizes of 100, 200, 300, 500, 600, 800,
1,000

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Determination of EOQ cont’d …

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ABC Technique (Pareto Analysis)

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Accounting

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ABC Technique (Pareto Analysis)
cont’d …

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Inventory Accounting System

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Inventory Recording

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Inventory Recording cont’d …

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 Specimen of Bin Card

Bin Card No. Max level:

Name of item: Min level:
Code No: Re order level:
Store ledger No: Re order quantity:

Received Issued Balance

Date Material Qty Store Qty Qty Date of Signature

Received Requisition checking
Note No. No.

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 Specimen of Store Ledger Card

Store ledger No. Max level:

Name of item: Min level:
Code No: Re order level:
Bin card No: Re order quantity:

Received Issued Balance

Date Particulars Qty Px Amt. Qty Px Amt. Qty Px Amt.

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Inventory (Stock) Taking

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Kinds of Inventory Taking

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Pricing of Issues

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Methods of Pricing of Issues

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Methods of Pricing of Issues cont’d
…

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Pricing Issue Method Based on
Actual Cost

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Inventory (Stock) Valuation

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Inventory Accounting Entries/Treatment in
Financial Statement -Perpetual Inventory
System cont’d ...

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Reconciliation of Book Values and
Physical Value of Inventory

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