ACC 405 –Inventory Management
Stock Recording and Control
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
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
Storage of Stock
 How and where stock is stored will
depend upon:
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The
The
The
The
weight of the goods
bulkiness of the goods
risk of physical deterioration
risk of theft
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
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
Stock Control
 An efficient Stock Control system
would include setting a:
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Maximum level of stock
Minimum level of stock
Reorder level for stock
Reorder quantity
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
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
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
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
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
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.
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
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
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
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-todate, 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
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.
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.
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
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.
Thank you
Any Questions???