Material Requisition Note [MRN]:

MRN- lists the items to be picked from inventory and

used in the production process.
Prepared by a production department when it wants to
draw material from stores.
Must contain all details and description of items.

Purchase Requisition [PR]:

Prepared by Storekeeper to Purchasing Department to
request that Purchasing replenishes stocks of materials
 Purchase Order- PO
Its a buyer-generated document that authorizes a
purchase transaction. When accepted by the seller, it
becomes a binding contract.

Prepared by the Purchasing Department and gives

details of quantity, description, and delivery urgency
of the materials required

Note that all orders are made through the Purchasing

Department.
 Goods Received Note [GRN]
GRN is a document showing description of goods and
quantity received.

All deliveries are inspected against the Purchase

Order to ensure that quantity and quality are correct.

A Goods Received Note is then prepared showing

details of goods transferred to stores
Goods Delivery Note
It is a document created by a SELLER on receipt of
merchandise which describes each good and details
the quantity of each received.
GOODS DESPATCH NOTE- is a document that is
raised by suppliers despatch department responsible
of sending goods out to customers.
A copy is sent to accounts department to process
invoice to the customer.

INVOICE
A document issued by a seller to a buyer, indicating
the products, quantities & agreed prices of provided
products/services.
Discrepancy Note / Inspection Note:

IS RAISED if goods delivered are found to be inadequate

upon inspection
Sent to Supplier, Purchasing and Accounts Dept.

Debit / Credit Note:

Debit note- is sent by a customer to a supplier often to
return goods on credit or cancellation.

Credit note- The supplier (seller) issues a credit note to

the customer indicating that the goods have been
received.
Note that: multiple copies [multi-copy system] of these
documents are prepared and routed to various
departments [e.g. GRN 1 is sent to the requisitioning
dept, Accounts, Purchasing etc so that they know that
the material they require has been delivered].

Note also: the segregation of duties in ordering,

receiving and paying for materials
 classification
THE CLASSIFICATION of costs into PRODUCT and
PERIOD COSTS is known as CLASSIFICATION BY
FUNCTION [was the function of the cost manufacturing
or non-manufacturing ?]

Another major classification within classification by

FUNCTION is Direct vs Indirect costs
Other Product Cost Classifications
Standard Cost
They are the predetermined costs on technical estimate
of material, labour and overhead for a selected period
of time and for a prescribed set of working conditions.

Conversion Costs: these are the costs incurred in

converting direct materials into finished products.
They constitute of Direct labour and
Manufacturing Overheads only.
 CLASSIFICATION OF COSTS BY
BEHAVIOUR

The cost of production can be classified on the behaviour

of the elements or cost items :
 Cont.
Classification of cost by behaviour refers to : How a
costs behaves [change or remains the same ] when
activity level [production or service] changes

1. Fixed cost: a cost that remains constant in total even it

the production level changes:
E.g.: Rent of P9 000 / annum, MDs salary of P55
000 /month, ... All these remain the same irrespective
of number of units produced/sold in the given period
2. Variable costs: These are costs that vary or change
with the level of activity.
They are measured per unit.
E.g.: labour rate of P17.00 per unit produced, material
costs of P 150. 00 per dress, phone bill for P 3.25 per
minute.

3. Semi-variable [Mixed]: costs have a component that

is fixed and a component that is variable.
E.g.: Mascom phone contract of P 350 per month plus P
1.00 call per minutes, BPC electric charge of P80 per
month plus electricity wattage at P 0.90 per watt
 Cont
Semi-Fixed costs:
Also known as Stepped-Fixed Costs

These are costs that are essentially fixed in nature, but as

activity level increases they too increase by a given [fixed]
amount.
E.g.: You employ a tailor who can make up to 20 dresses a
month [paid P 3 000 per month]. What would labour
costs be if you had orders for : [a] 21 dresses? [b] 40
dresses ?
 Exercise
Indicate whether the following are fixed costs, variable
costs, mixed costs or stepped-costs.

1. P 2 000 monthly wage paid to secretary

2. P 40 per brick paid to a brick-maker
3. Factory rental
4. Salary of P 1 200 plus 10% commission on sales paid to
a salesman
5. Advertising expenses
Cont..
6. Salary of 20 % commission paid to employee
7. Water and other power charges in Botswana
8. Insurance premium of P 50 000 p.a. for assets
less than P 1 million, increasing by P 20 000 p.a.
for multiple of P 1 mil in assets