Stock Recording and Control

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Stock Recording and Control
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Stock Recording Systems

• The recording of stock movements is an important
  part of Stock Control
• Stock Recording Systems should be in place eg
• Bin Cards for each item of stock held, recording
  all stock removed and added
• Stock Record Cards (which will also show prices
  of receipts and issues of stock)
• Computers eg Spreadsheet showing all movement of
  stock

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Location of Stock

• Location of Stock will depend upon
• The type of production process
• The nature of materials eg are they flammable?
• The time taken to transport the materials from
  the stores to the production cost centres

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Storage of Stock

• How and where stock is stored will depend upon
• The weight of the goods
• The bulkiness of the goods
• The risk of physical deterioration
• The risk of theft

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Stock Taking

• Physically checking your stock is necessary to
  ensure that stock records are accurate and as a
  deterrent against theft.
• Stock taking can be
• Periodic ie annually
• Perpetual ie ongoing where the balance of stock
  is updated after every receipt and issue

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Stock Levels

• There are disadvantages in having too much stock
  or too little stock
• Overstocking causes
• High storage costs
• Cash being paid out before it is necessary
• High risk of deterioration or obsolescence
• Understocking causes
• Running out of stock and holding up production
• Customers going elsewhere if production is halted

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Stock Control

• An efficient Stock Control system would include
  setting a
• Maximum level of stock
• Minimum level of stock
• Reorder level for stock
• Reorder quantity

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Maximum Stock Level

• This is the level by which stock should not rise
  above.
• When setting a Maximum Stock Level the following
  should be considered
• The cost of storage
• The rate of usage
• The delivery time of stock from the time the
  order was placed
• The risk of deterioration

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Minimum Stock Level

• This is the level by which stock should not fall
  below.
• When setting a Minimum Stock Level the following
  should be considered
• The rate of usage
• Delivery time
• The level of safety or buffer stocks to be held

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Reorder Level of Stock

• This is the level at which an order for new stock
  should be made.
• When deciding on the reorder level the following
  should be considered
• Rate of stock usage
• Level of buffer stocks
• The cost of storage

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Reorder Quantity

• The reorder quantity is the quantity of materials
  to be ordered when stocks reach the reorder level
  and will depend upon
• Cost of ordering the stock (taking into account
  any discounts for bulk buying)
• Cost of storing the stock

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Methods of Valuing Stock

• There are 3 main methods of valuing stock
• First In, First Out (FIFO)
• Last In, First Out (LIFO)
• Weighted Average Cost (AVCO)
• Whichever method is adopted must then be adhered
  to - the Concept of Consistency

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First In, First Out (FIFO)

• The first goods received are deemed to be the
  first goods to be issued.
• Consider a supermarket restocking its shelves
  old stock is moved to the front of the shelf and
  the new stock placed at the back. Hopefully,
  shoppers will select the old stock first.

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Advantages of FIFO

• The prices are based on actual cost, therefore no
  profit or loss can arise
• The stock value is a fair representation of
  current values because the stock value is based
  on the most recent purchases
• It is a logical method as normally goods would be
  issued in the same order as they are purchased
• It is an easy system to operate

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Disadvantages of FIFO

• The price the goods are issued at may be
  out-of-date
• Clerical errors may be made
• With changing prices, a comparison of the cost of
  one job with another may be misleading
• When prices are increasing, the charge to
  production may be low but the replacement price
  of stock may be much higher

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Last In, First Out (LIFO)

• With this method, as each issue of goods is made
  they are deemed to come from the last batch of
  goods received and
• Where the last batch received are insufficient to
  meet the issue, then the balance is deemed to
  come from the next previous batch available

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Advantages of LIFO

• The prices are based on actual cost, therefore no
  profit or loss can arise.
• The price of issues is fairly up-to-date, because
  issues are valued at the price of the most recent
  batch of purchases.
• The charge to production is therefore up-to-date,
  and the cost of replacing stock should not be
  very different.
• The information which management will receive is
  realistic because the issues are an indication of
  current costs

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Disadvantages of LIFO

• The stock value which results is based on the
  oldest stocks and therefore could be out-of-date.
• Clerical errors can arise.
• A comparison of different jobs may be misleading
  2 similar jobs may have very different costs
  attached.

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Weighted Average Cost (AVC)

• With each receipt of goods, the average cost of
  goods held in recalculated.
• Any subsequent issue is then made at that price
  until a further receipt of goods necessitates the
  average cost to be recalculated.

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Advantages of AVCO

• The prices are based on cost, and the method is
  generally accurate, provided the unit price is
  set carefully.
• It is a sensible system which operates on the
  basis that if parts are identical, the prices
  should also be the same
• It avoids involved calculations for every new
  issue and receipt of stock

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Disadvantages of AVCO

• The only disadvantage of AVCO if that there is
  usually a need to fix prices to several decimal
  places if they are to be accurate.