The Material Accounting Criterion

At a minimum, the contractor's material accounting system must provide for the following:

a. Accurate cost accumulation and assignment of costs to cost accounts in a manner consistent with budgets using recognized, acceptable costing techniques.

b. Determination of material price variances by comparing planned versus actual commitments.

c. Cost performance measurement at the point in time most suitable for the category of material involved, but no earlier than the time of actual receipt of material.

d. Determination of material cost variances attributable to the excess usage of material.

e. Determination of unit or lot costs when applicable.

f. Full accountability for all material purchased for the project, including residual inventory.

In order to satisfy these six system requirements, the following accounting practices should be adhered to:

a. The material cost actuals (ACWP) must equate to its material plans (BCWS), and be carried down to the cost account level of the WBS.

b. The material price variances must be determinable by comparing planned commitments (estimated material value) to actual commitments (actual cost of the material).

c. Physical work progress or earned value (BCWP) must be determinable, but not before the materials have been received.

d. Usage cost variances (to be discussed in the next section) must be determinable from excess material usage.

e. Material unit costs and/or lot costs must be determinable, as applicable.

f. There must be full accountability of all materials purchased, including any residual material inventory.

Although this task appears difficult on the surface, it is easy if the organization focuses on two areas:

1. The material plans (BCWS): These frequently start at the point at which engineering or manufacturing or others have provided a definition sufficient to initiate an order for the items, regardless of when such items are actually ordered or received.

2. The material actuals (ACWP): This is ordinarily the point at which the costs of the parts are recorded on the firm's accounting books, that is, when the bill is paid.

Those firms that have a material commitment system in use as part of the material accounting system are usually able to establish and update the costs for their purchased goods at multiple points: as an estimated liability when engineering or manufacturing defines the requirements; still as an estimated liability when someone formally initiates the request; updated to an accrued liability when an order is placed by purchasing; later updated to an actual liability when parts are received and accepted; and updated a final time when the bill is paid and the costs are recorded on the accounting books.

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Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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