Issue of materials to production.

Purpose of Issuing Materials

• Facilitate Production: Provides the necessary inputs for manufacturing operations as per the production schedule and bill of materials.
• Cost Control: Enables tracking of material consumption, allowing for accurate costing of products and identification of waste.
• Inventory Management: Updates inventory records, reflecting the reduction in stock levels and triggering reorder processes when needed.
• Accountability: Establishes a clear audit trail for material movement, assigning responsibility for materials from storage to production.
• Quality Control: Ensures that the right type, quality, and quantity of materials are issued for specific production orders.

The Process of Issuing Materials

The material issue process typically involves the following steps:

1. Material Requisition (or Material Indent Note) 📝:

   • The production department or a specific work center identifies a need for materials based on a production order, bill of materials (BOM), or production schedule.
   • They prepare a Material Requisition Slip (also called a Material Indent Note or Stores Requisition). This is a formal document authorizing the issue of materials from the store.
   • Information on the requisition typically includes:
     • Date of request
     • Production order number or job number
     • Description of the material (item code, part number)
     • Quantity required
     • Required delivery date/time
     • Department requesting the material
     • Authorization signature (e.g., by the production manager or supervisor)
   • This document serves as the authorization for the stores department to release the materials.

2. Verification and Approval:

   • The Material Requisition Slip is sent to the stores or inventory department.
   • The storekeeper verifies the details on the requisition against stock availability and checks for proper authorization.
   • In some cases, especially for high-value items or large quantities, additional approval from higher management might be required.

3. Picking and Issuing of Materials 📦:

   • Once approved, the storekeeper picks the requested materials from the shelves or designated storage locations.
   • The materials are then issued to the requesting department. This involves physically moving the materials to the production floor.
   • The storekeeper updates their Bin Card (a record of inventory movements for each item) to reflect the outflow of materials.

4. Acknowledgement of Receipt:

   • The production department or the person receiving the materials signs the Material Requisition Slip to acknowledge receipt of the materials. This completes the transfer of responsibility.
   • A copy of the signed requisition may be retained by both the stores department and the production department.

5. Recording and Costing 📊:

   • The stores department forwards a copy of the issued requisition to the cost accounting department.
   • The cost accounting department uses this information to:
     • Update the Stores Ledger: A detailed record of all receipts and issues of materials, often including cost information.
     • Charge the Production Order/Job: The cost of direct materials issued is debited to the Work-in-Process (WIP) inventory account for the specific production order.
     • Allocate Indirect Materials: The cost of indirect materials is typically charged to manufacturing overhead.
     • This helps in accurately calculating the cost of goods manufactured.

Methods of Material Issue

The valuation method used for materials issued can significantly impact the cost of production and the valuation of remaining inventory. Common methods include:

• FIFO (First-In, First-Out): Assumes that the first materials purchased are the first ones issued to production. This method generally results in a higher cost of goods sold and lower ending inventory during periods of rising prices.
• LIFO (Last-In, First-Out): Assumes that the last materials purchased are the first ones issued to production. This method generally results in a lower cost of goods sold and higher ending inventory during periods of rising prices. (Note: LIFO is not permitted under IFRS).
• Weighted Average Cost: Calculates an average cost of all materials available for issue and uses this average to value the materials issued. This method smooths out price fluctuations.
• Standard Cost: Materials are issued at a predetermined standard cost. Any difference between the actual purchase cost and the standard cost is recorded as a variance.

Digitalization and Automation

In modern manufacturing, many of these steps are automated using Enterprise Resource Planning (ERP) systems. Instead of physical slips, electronic requisitions are generated, approved digitally, and trigger automated inventory adjustments and financial postings. This streamlines the process, reduces errors, and provides real-time visibility into material availability and consumption.