1. Welcome toour presentation

2. We are group number 5The members of our group are:1.Md.Fazlul Bari2.Md.Al-amin3.Md.ashraful haq4.Palash Banik(GL)5.Md.Badrul alam 3. Now on the dais--------- Md.Fazlul bari Id: 030802 4. Centralized vs. decentralized purchase In organizations where production centers are many in number situated at distant places. It may be an important issue to decide whether there should be one purchase department to purchase for all the production centers or there should be one purchase department for each production centre. the decision shall depend primarily upon-(a) the distance between the production centers and the central go down,(b) the nature of the materials used i.e., bulky, heavy, fragile etc.,(c) the cost and risk of transport,(d) the police of the firm in this respect; and secondarily upon the comparative advantages and disadvantage of the two system. 5. From the point Centralized purchase Decentralized purchaseviewControl Better control exercised on buying. Effective control may not bepresent.Terms of Better terms of purchase may beLess favorable terms may bepurchase available duck to large-scale order. available.Efficiency Due to specialization efficiency isPurchase by departmental obtained.heads loaded with otherwork cannot be-expected tobe efficientStandardize of All departments can get standard Standards of materials mayMaterialsmaterials purchased by centralized vary from department to purchasing departmentdepartment 6. Economy of staff,Centralized purchase Decentralized purchaseaccommodation andbrings economy of staffrequires more staff andfinanceand accommodalation andmore accommodation(all also of finance, because taken together)and also excess of stores need notmore finance to purchase. be held.Regulation of purchase It is easy to regulate purchaseChange in purchase policypolicy policy and give prompt effectcan not be easily given effect to any change in case of to in case of decentralized centralized purchase.pur-chase.Initial cost Initial cost is relatively high. Initial cost is relatively lowTransport cost Transport cost from centralTransport cost from go down to productiondepartmental go down to centers is considerable. production centers ispractically nil.Interdepartmental relation Central supply may Chances of sometimes be criticized formisunderstanding ate favoritisms and there mayabsent. 7. Discuss the constituents of material cost.Constituents of Material CostWhen material are purchased we do not pay for the materials only. We also pay sales tax, excise duty, control, freight insurance etc .at the same time we often enjoy trade discount and cash discount. what are the constituents of material cost? The material cost includes the following: 8. Invoice price: it is the price of materialscalculated at the agreed rate subject todeduction of trade discount, if any.Excise duty, sales tax, octrol etc: theseare the levies made by the governments onproduction or sales. So, these are includedin the cost of materials purchase. 9. Freight. Insurance etc: costs of bringing thematerials from suppliers end, when born by thebuyer, are included in the cost of materials,insurance. thus, carriage included in the cost ofmaterials.Packing cost: If packing cost is changed, inaddition to the invoice price. such cost is a partof the cost of materials. When materials aredelivered in returnable package which arecharged to buyer and credit is given to the buyerat a lower rate on return, the difference betweenthe rate charge and the rate credited means hirecharge to be included in the cost materials. 10. Cash discount: If refers to the deductionsavailable in respect of invoice value, ifpayment can be made within the timeprescribed. This is there for a reward forgood financial management and has gotnothing to do with the purchase. So cashdiscount should not be deducted in order toascertain the cost of materials, althoughthere is a controversy on this issue amongstthe cost accountants. 11. What are the considerable factor for fixing minimum level and maximum level of stock? Level of stock(a) Minimum level: While fixing the minimum level the following factor are to be taken into consideration: 12. (1)Nature of the materials: materials theare regularly stored must maintain aminimum level. If on customer order aspecial item of materials is to be purchaseno minimum level is required to be fixed forthat.(2)The maximum time required from thedate order to the date of actual delivery:It is known as the lead time. The longer thelead time, the lower is the minimum level,provide the re-order point remainsconstant. 13. (3)Rate of consumption of the materials: The minimum rate, the maximum rate and the normal rate of consumption are to be taken into consideration.(b) Maximum level:While fixing the maximum level the following factors required consideration:(1)Rate of consumption of the materials.(2)The lead time. 14. (3)The maximum requirement of thematerial at any time.(4)Nature of the materials: The materialswhich deteriorate quickly are stored as littleas possible.(5)Storage space available for the materials.(6)Price economy: Seasonal materials arecheap during the harvesting seasons. somaximum level is height.(7)Cost of storage and insurance. 15. (8)Cost of the materials and the financeavailable: When the materials is costly themaximum level is likely to be low. If theprice is likely to go up maximum levelshould be height.(9)Inventory turnover: In case of slowmoving materials the maximum level is lowand in case of quick moving materials themaximum level is height.(10)Nature of supply: If the supply isuncertain the maximum level should be ashigh as possible. 16. What do mean by danger level?In addition to the minimum, maximum and re-ordering levels there is another level called danger level. This level is below the minimum level and when the actual stock reaches this level urgent measure is to be taken to replenish stock. When the normal lead time is not available, the purchase quantity cannot be accurately fixed. so it is fixed in such a way that the actual stock does not fall below danger level by the actual lead time. 17. This means that the minimum level contains a Cushing to cover contingencies.When the danger level is fixed below the minimum., it being reached by the actual stock, the defect in the system is detected and corrective measure becomes necessary .When the danger level is fixed above the minimum, it being reached by the actual stock, preventive measure is to be taken so that may not go below the minimum level. 18. What is ABC system?ABC system/selective control systemWhile acquiring materials, economy in purchase is the striking point to consider. In order to achieve economy, all the items of stock are classified into there classes A,B,C. A indicates a small number of items which requires heavy investment, C indicates a large number of items for which total investment required is not much and B indicates the items between A and C I, e number of 19. items in B is lea then that in C but more then that in A and the total investment is less than that in A but more than that in C. The investment in C items is not large the stock may be acquired for a year. This will save the cost of placing order and receiving materials. In case of B items orders may be placed as and when the stock reaches the ordering level .So for as A items are concerned, it is necessary to work-out the exact quantity of each order economically justified. The stock of A items should be 20. subject to more cautious control then that of B items and C items. The system of classification and control of materials indicate above is called ABC system.Distinguish between bin card and store ledger: 21. Now on the dais---------Md:al-aminRoll:030814 22. It records the inward and outward It records the same things but in bothmovement of the materials and thequantity and value.balance after each movement, only inquantity. Entries are made in the bin card when Entries one made in respeet of punchpurchase are returns come in and whenuse, return and issue, but afterissues go out. recording in bin card. The officer in charge of the bin card in The personnel in charge of the storesresponsible for any discrepancy in ledger is not responsible for any suchmaterials. discrepancy as he has no connection with the materials. Bin card is a stock record in the true Stores ledger is a stock control record.sense. Bin card cannot supply inventory value Stores ledger can supply inventory valuefor presentation of financial profit and to help preparing financial profit andloss statement.loss statement. Posting in bin card in made for each Posting may be made on the basis ofindividual transaction.summary of several transaction in the 23. Inventory turnover: Inventory turnoverusually expressed as a ratio, indicates thenumbers of times the inventory is turnedover during a particular period. It is ameacene of rate at which materials areconsumed. The ratio is calculated by usingthe following formula:Inventory turnover = Cost of materialsconsumed Average inventory held duringthe period. 24. Advantages and disadvantages of FIFO method : FIFO method: In FIFO the earlier punches shall be exacted earlier and the stock with represent later purchases. Advantages: i) Materials shall be charger at cost. So there will be no difference between total cost and total charges. (2) In conditions of falling prices the method gives better result (3) value of closing stock will more on less correspond to the market price. 25. (4) The method is simple in both theory and practice.Disadvantages:1. In conditions of rising prices the method proves that lower costs are absorbed by production and higher costs are represented by closing stock. Replacement of stock will involve more money. 2. In case of large number of purchases clerical errors in pricing may crop up.3. Two jobs may be charged at differentrates. so comparison of cost will give 26. Labor cost: Labor cost represents human contribution. From the point of view of sensitivity of the various elements of cost, Labor cost is the most sensitive, because it relates to human behavior. Time Keeping: In every organization the opening time, closing time, and lunch break pen day an week one fixed. So the recoding of Attendance and departure of every worker is essential. This recording of attendance and departure done mainly for administrative payment purpose is called Time keeping. 27. Idle Time Idle time represents the time of a workerfor which wages is paid but no work isobtained against the payment. Someamount of idle time is inevitable in anyindustry in spite of efficient management,because men are not machines. The idletime cost offers a problem for control as faras possible, but not for total elimination. 28. Labor TurnoverLabor turnover is defined as the ratio of the number of workers leaving an organization during a given period to the average number of workers on roll during the same period. High labor turnover ratio indicates unstable workers due to any reason and the position is not desirable in any organization. The following are the different ways of measuring labor turnover ratio: 29. (a)Separation Method= (Number of workers leftduring the period /averagenumber of workers on roll during the period)100 (b) Replacement Method= (Number of workersreplaced during the period/average number of workers on roll during theperiod) 100(c) Flux method= (Number of separation +numberof replacements/average number of workers on roll during theperiod) 100 30. Now on the dais---------Md ashraful haqRoll:030844 31. Causes of labor turnover: The principle causes of labor turnover may be arranged under two heads:(1) Avoidable Causes: a) bad working conditions, b)lack of job satisfaction, c) inadequacy of welfare measures, d) lack of scope for training and promotion, e)long hours of work, f)lack of facilities for recreation, childrens education etc. g) managements inhumane attitude, h) lack of understanding amongst the workers etc. 32. (2) Unavoidable Causes: a) unhealthy atmosphere of the locality, b) social unrest, c) retirement and death, d) leaving on a better chance, e) retrenchment during off season in case of seasonal industries, f) disablement due to disease or accident inside or outside, g) marriage of female workers, h) change of place due to political reasons or on the ground of health etc. 33. Merit ratingMerit rating refers to evaluation of the individual merits of the employees. Job evaluation means the systematic analysis and classification of jobs according to their characteristics, and merit rating means the evaluation of the merits of the workers and their classification on that basis.Merit rating is done by keeping the performance records of every worker assessing the performances in terms of some norms or standards. 34. Now on the dais--------- Palash banik Roll:03010 35. Factors considered before selecting amethod of remuneration(a) Easy understandability: theremuneration method must be easilyunderstood by an average worker, otherwisethere may be misunderstanding andsuspicion leading to labor unrest. Simpleremuneration method involves less clericalcost in preparing wage bills and costrecords. 36. (b) Choice between quality and quantity: if an organization considers that quantity is much more important than quality, a method of remuneration by result should be selected, because the workers earning and output are directly related in this method.(c) Effect on overhead: the fixed overhead is spread over the units produced. So, higher the output lower is the incidence of fixed overhead per unit. 37. (d) Satisfaction to workers: the methodof remuneration must satisfy the workers,otherwise there will be high labor turnoverinvolving preventive and replacement costof labor turnover. A method which createssatisfaction shall help to attract efficientworkers from outside the organization.(e) Conformity: the method ofremuneration selected must be inconformity with used by similarorganizations in similar sphere. 38. 1. What are the essential features ofsuccessful wage plan?Successful wage plan must have the followingessential features:a) Fairness: becomes fair to both employers andemployees when it is based on scientific time andmotion study.b) Minimum wage Guarantee: Whether underlegal compulsion or not a minimum wage mustbe guaranteed to workers. This should fairlyabove substance level of income. 39. c) Link between Effort and Remuneration:Unless a link is established between the value ofwork done and remuneration payable, it is boundto unfair to either the workers or to the employer.d) Satisfaction for the workers: The plan mustsatisfy the workers and as a result there will behigh morale and labor turnover.e) Conformity with legal provisions andTrade Agreements: The wage plan must notviolate any of the provisions of law relating towage payment nor it should violate any tradeagreement. 40. f) Work Guarantee: In case of payment byresult, even if the rate is too high, theworkers earnings will not be satisfactoryunless there is a continuous work availableto them. In case of payment on time basisalso, unless continuous work is availablethere will too much payment for idle timecausing heavy loss to the employer. 41. g) Restrictive Provision: When under awage plan a worker is paid on the basis ofoutput, he is likely to go on producing asmuch as he can in order to maximize hisearning. So, unless there is provision whichwill restrict his output, there may beundesirability over-production, too muchdepreciation to workers health greaterchances of breakdown and scraps anddefectives etc. 42. h) Cost of Implementation: he cost ofimplementation of the wage plan must aslow as possible. i) Flexibility: The wage plan must not berigid. It should be flexible. If the situationchanges some changes may have to beincorporated in the wage plan also. A rigidplan is never suitable for modification 43. Brief discuss the Taylors Differential Piece Rate System. This was introduced in the United States by F. W. Taylor, who is regarded as the father of scientific management: In this system two different piece rates are fixed for each job. The lower rate equivalent to 83% of the time rate is applicable to workers working at less than 100% efficiency. The higher rate is applicable to workers working at and above 100% efficiency. The rate is fixed at 125% of time rate plus 50% of time rate in the form of incentive. 44. A standard time may be fixed for performing astandard task. The efficiency is worked out, in thiscase, as below:% Efficiency =standard time/actual timetaken100Alternatively, a standard output may be fixed duringa standard time. The efficiency is measured, in thiscase, as below:%Efficiency= actual output/standardoutput100 Taylor did not guarantee any day wage. Since thelower rate is abnormally low, the workers who cannot attain 100% efficiency are panelized. The higherrate being very high, the efficient workers get veryhigh reward. 45. Now on the dais---------Md:Badrul alamRoll:03014 46. What is overhead? Eric L. Kohler defined overhead, any cost of doing business other than a business direct cost of an output of product and service. He also points out that overhead is a generic name for manufacturing costs of materials and services not readily identifiable with the products or services that constitute the main output of an operation. Overhead therefore means those expenses which can not be allocated to any product or services. 47. According to H. J. Wheldon, overhead represents the cost of indirect material, indirect labor and such other expenses including services as can not conveniently be charged to a specific unit.Briefly discuss the classification of overhead. Overhead may be classified in various ways as stated below: (a)Function wise classification. (b)Element wise classification. (c)Behavior wise classification. 48. (d)Control wise classification.Let us discuss each of the above briefly,(a)Function wise classification: Everymanufacturing organization has three distinctfunctions, namely 1.Production function2.Administration function and3.Selling and distribution function All indirect expenses incurred in connection withproduction function are production overhead orfactory overhead or works overhead 49. (b)Element wise classification: If indirect expenses are classified element wise we come across three classes, 1.Indirect materials 2.Indirect labor 3.Indirect expenses 4. Element wise classification may be done within each function or for all functions taken together (c)Behavior wise classification: How each element of overhead behaves when there is a change in the volume of production is the main consideration for behavior wise classification. 50. Expenses that remain the same irrespective of thelevel of output constitute fixed overhead,expenses that change proportionately with thechange in the level of output constitute variableoverhead and expenses that change but notproportionately with the change in the level ofoutput constitute semi variable overhead or semifixed overhead.Behavioral classification is of fundamentalimportance for the purpose of marginal costingfor preparing flexible budget or standards andalso for the purpose of control of overhead cost 51. (d)Control wise classification: Overhead costs which can be controlled by the exercise of proper managerial influence are controllable costs and overhead costs that can not be controlled in spite of the best exercise of managerial influence are uncontrollable costs.What are the points to be considered while making an attempt for recovery or absorption of overhead?1.Absorption should be as accurate as possible that is overhead incurred should be fully absorbed.2.There should not be much clerical work and cost involved in the process of absorption. 52. 3.Production factors, like time of production skill of workers etc. should dully considered4.It should be remembered that the nature and method of production in every department are not the same. So methods of absorption shall vary from department to department. Whatever may be the method of absorption followed by any production department such method must assure accurate cost ascertainment and appropriate cost control. 53. Thanks to all_ _ _