Meaning of Obsolete Materials or Obsolescence of Materials
Obsolete Material refers to those materials which are no longer required for production either due to change in the design of the finished products for which they have been used or due to the fall in the demand for the finished product arising from the change of fashion.
Causes for Obsolescence of Material
The main causes for obsolescence or Obsolete Material are as follows:
1. The failure on the part of the production control department to inform the purchase department of any contemplated change in the design of the product.
2. Absence of standardization.
3. Non-maintenance of separate register of obsolete materials.
4. Carelessness on the part of the purchasing manager in purchasing materials which are no longer required.
5. The failure on the part of the stock-keeper to keep the purchasing department informed regularly about the slow moving items of materials.
6. The failure of the purchasing department to cancel the outstanding orders for materials which are no longer required for production.
7. The failure on the part of the sales department to inform the production planning department and the purchasing department about the change of fashion and the resulting fall in the demand for finished products for which the obsolete materials are used.
Control of Loss Arising From Obsolescence of Materials
The loss arising from obsolescence of materials cannot be avoided. But they can certain be controlled or minimized, and for this the following measures can be followed:
1. The production control department should bring to the notice of all the concerned personnel about the changes contemplated in the design of the finished product.
2. When any change is contemplated in the design of the product or when there is the emergence of better substitute materials, the purchasing manager should take the necessary steps to cancel the outstanding order for the obsolete materials.
3. The store-keeper should send regular report of slow moving materials to the purchasing department, the production department and the production control department.
4. A Separate register should be maintained for obsolete materials to provide up-to-date information on such materials.
5. Wherever possible, the obsolete materials should be used within the factory for some other work order.
6. If the obsolete materials cannot be used within the factory for some other work order, they should be scrapped and sold.
7. If the obsolete materials do not command any scrap value, they should be discarded.
Treatment of Obsolete Materials
The losses arising from the scrapping of obsolete materials should be treated as abnormal losses, and as abnormal losses, they should be debited to costing Profit and Loss Account.
- What is Cost Concepts and Different Terms of Costs
- What is concept of Cost Audit | Objective and Scope of Cost Audit
- Advantages and Disadvantages of Cost Audit
- Meaning of Methods of Cost | Basic Methods of Costing
- What is meaning of Classification of Cost & elements of Cost | rules of Cost Accounting Standard
- What is Installation of a Costing System | Conditions and Factors
- What are the practical difficulties in installing cost accounting
- What is technique of Costing | Various techniques of Costing
- What is Material or Inventory Control | Techniques of Materials Control
- What is FIFO Method | advantages and disadvantages
- What is LIFO method | Advantages and Disadvantages
- What is Periodical or Annual Inventory Control System | Limitations
- Methods of Pricing Material Issues | Cost Methods
- What is Cost of Labour Turnover | Causes, Effects Classification
- What is meant by idle time | Definition, Causes, Control
- What is meaning of overtime work | Reason, Disadvantages
- HIFO method of inventory valuation |Advantages, Disadvantages
- What is two Bin System | Meaning of Bin Card and Specimen
- What is Meaning of NIFO Method | Advantages, Disadvantages
- What is Market Price Method or Replacement Price Method | Advantages, Disadvantages
- What is average cost method of Inventory valuation | Advantages and Disadvantages
- What is Meaning of Weighted Average Price Method | Advantages and Disadvantages
- Meaning of Material Losses | Types and Treatment
- What is Difference Between Waste and Scrap
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