The Meaning of Purchase Department In Cost Accounting.
The purchase department plays a very important role in an organisation because purchasing has its effect on every vital factor concerning the manufacture, quality, cost, efficiency and prompt delivery of goods to customers. Its function is to procure materials, supplies, services, machines and tools at the most favorable terms consistent with maintaining the desired standard of quality. Purchasing is the most important function of materials management as the moment an order is placed for the purchase of materials, a substantial part of the company's finance is committed which affects cash flow position of the company. Thus, if the size of a business concern permits, there should be a separate purchasing department and the responsibility for purchasing all types of materials should be entrusted to this department. The head of this department is usually known as the Purchase manager or the supply manager or the chief buyer.
Following are the basic objectives behind establishing a separate purchasing department:
- To make continuous availability of materials so that there may be uninterrupted flow of materials for production.
- To make purchase competitively and wisely at the most economical prices.
- To make purchase in reasonable quantities to keep investment in materials at minimum.
- To purchase proper quality of materials to have minimum possible wastage of materials and loss in production.
- To develop good supplier relationship which will ensure the best terms of supply of materials.
- To develop alternate sources of supply so that materials may be purchased from those alternate sources if a particular supplier fails to supply the materials.
- To adopt the most advantageous method of purchase to ensure smooth delivery of materials from suppliers and to avoid the risks of any disputes or financial loss.
- To serve as an information centre on the materials knowledge relating to prices, sources of supply, specifications, mode of delivery etc.