Accounting and Control of Material Cost Malayalam Tutorial Part 1 Bcom | Cost Accounting

Introduction

This tutorial focuses on the accounting and control of material costs, specifically in the context of purchasing. It covers essential concepts such as centralized and decentralized purchasing, the steps involved in the purchasing process, and the differences between the two purchasing methods. This guide is beneficial for BCom students and anyone interested in cost accounting principles.

Step 1: Understanding Centralized and Decentralized Purchasing

• Centralized Purchasing means that all purchasing decisions are made by a single department or location.

  • Advantages:
    • Better control over purchases.
    • Potential cost savings due to bulk buying.
    • Consistency in quality and supplier relationships.

• Decentralized Purchasing allows individual departments or branches to make their purchasing decisions.

  • Advantages:
    • Increased flexibility and quicker response to local needs.
    • Departments can make more informed choices based on specific requirements.

Practical Tip

Evaluate your organization’s size and needs to determine which purchasing method might be more effective.

Step 2: Steps in the Purchasing Process

1. Identify Needs

   • Assess what materials or products are required.

2. Supplier Selection

   • Research and evaluate potential suppliers based on quality, price, and reliability.

3. Request for Quotation (RFQ)

   • Send out RFQs to selected suppliers to obtain pricing and terms.

4. Compare Offers

   • Analyze the responses received to determine the best supplier.

5. Place Order

   • Confirm the order with the chosen supplier, detailing quantities, delivery dates, and payment terms.

6. Receive Materials

   • Check the delivered goods against the order for accuracy and quality.

7. Payment Processing

   • Process payment according to the agreed terms once the delivery has been verified.

Common Pitfalls to Avoid

• Failing to clearly define material requirements can lead to overordering or underordering.
• Neglecting to evaluate supplier performance can result in ongoing issues with quality or delivery.

Step 3: Differences Between Centralized and Decentralized Purchasing

• Decision-Making Process

  • Centralized: One team or person makes all purchasing decisions.
  • Decentralized: Individual departments make their own purchasing decisions.

• Cost Control

  • Centralized: Easier to negotiate discounts and manage budgets.
  • Decentralized: Departments may incur higher costs due to lack of negotiation power.

• Speed of Process

  • Centralized: May be slower due to the need for approval from a central authority.
  • Decentralized: Faster decision-making due to local autonomy.

Practical Tip

Consider a hybrid approach that combines both methods to leverage the strengths of each while mitigating weaknesses.

Conclusion

In this tutorial, we explored the accounting and control of material costs with a focus on purchasing practices. Understanding the differences between centralized and decentralized purchasing, as well as the steps involved in the purchasing process, is crucial for effective cost management. As you continue your studies in cost accounting, consider how these concepts apply in real-world scenarios and how they can enhance your decision-making skills in purchasing. For further learning, explore Parts 2 and 3 of this tutorial series.