2Stock Recording Systems The recording of stock movements is an important part of Stock ControlStock Recording Systems should be in place egBin Cards for each item of stock held, recording all stock removed and addedStock Record Cards (which will also show prices of receipts and issues of stock)Computers eg Spreadsheet showing all movement of stock
3Location of Stock Location of Stock will depend upon: The type of production processThe nature of materials eg are they flammable?The time taken to transport the materials from the stores to the production cost centres
4Storage of Stock How and where stock is stored will depend upon: The weight of the goodsThe bulkiness of the goodsThe risk of physical deteriorationThe risk of theft
5Stock TakingPhysically checking your stock is necessary to ensure that stock records are accurate and as a deterrent against theft.Stock taking can be:Periodic ie annuallyPerpetual ie ongoing where the balance of stock is updated after every receipt and issue
6Stock LevelsThere are disadvantages in having too much stock or too little stockOverstocking causes:High storage costsCash being paid out before it is necessaryHigh risk of deterioration or obsolescenceUnderstocking causes:Running out of stock and holding up productionCustomers going elsewhere if production is halted
7Stock ControlAn efficient Stock Control system would include setting a:Maximum level of stockMinimum level of stockReorder level for stockReorder quantity
8Maximum Stock LevelThis is the level by which stock should not rise above.When setting a Maximum Stock Level the following should be considered:The cost of storageThe rate of usageThe delivery time of stock from the time the order was placedThe risk of deterioration
9Minimum Stock LevelThis is the level by which stock should not fall below.When setting a Minimum Stock Level the following should be considered:The rate of usageDelivery timeThe level of safety or “buffer” stocks to be held
10Reorder Level of StockThis 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 usageLevel of buffer stocksThe cost of storage
11Reorder QuantityThe 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
12Methods of Valuing Stock There are 3 main methods of valuing stockFirst 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
13First 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.
14Advantages of FIFOThe prices are based on actual cost, therefore no profit or loss can ariseThe stock value is a fair representation of current values because the stock value is based on the most recent purchasesIt is a logical method as normally goods would be issued in the same order as they are purchasedIt is an easy system to operate
15Disadvantages of FIFOThe price the goods are issued at may be out-of-dateClerical errors may be madeWith changing prices, a comparison of the cost of one job with another may be misleadingWhen prices are increasing, the charge to production may be low but the replacement price of stock may be much higher
16Last 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 andWhere the last batch received are insufficient to meet the issue, then the balance is deemed to come from the next previous batch available
17Advantages of LIFOThe 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
18Disadvantages of LIFOThe 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.
19Weighted 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.
20Advantages of AVCOThe 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 sameIt avoids involved calculations for every new issue and receipt of stock
21Disadvantages of AVCOThe only disadvantage of AVCO if that there is usually a need to fix prices to several decimal places if they are to be accurate.