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Unit 5: Methods of Valuing Material Issues





          z z  The purchase department has to exercise utmost care to procure the quality materials at   Notes
               lower prices.
          z z  The stores department has also an effective role to play for stock levels.
          z z  By  keeping  only  the  required  quantities  of  materials,  excess  employment  of  capital  on
               materials can be avoided.

          z z  Further, it can reduce the loss of materials during the storage period and keep the materials
               in good condition.

          z z  It is the production departments which are capable of extracting the maximum output
               from each unit of materials thereby contributing heavily to minimize the loss of materials
               during the production period and to maximize the productivity.

          5.9 Keywords


          Simple Average: Moving average that equals weight to price
          Standard Price: Constant price
          Stock Balance: Inventory of raw material, work in progress and finished goods.

          5.10 Review Questions

          1.   Write short notes on the followings:
               (a)   FIFO Method,                (c)   Simple Average Cost Method, and

               (b)   LIFO Method,                (d)   Weighted Average Cost Method.
          2.   ‘Of all the method of pricing material issue the FIFO method is the best and the simplest’.
               Explain this statement.
          3.   Indicate and briefly explain the two different methods usually followed in pricing stores
               other than the ‘Last-In First-Out’ method.
          4.   Indicate different methods used for pricing our materials.
          5.   Select  a  manufacturing  concern  and  outline  a  system  of  materials  control  for  it.  Give
               specimen of various forms you will require.
          6.   Prepare a stores ledger account from the following information’s adopting FIFO method of
               pricing material issues:
               June   01  Opening Balance 500 tonnes @ ` 200.
                     03  Issues 70 tonnes.
                     04  Issues 100 tonnes.
                     08  Issues 10 tonnes.

                     13  Received from supplier 200 tonnes @ ` 190.
                     14  Returned (issued on 3rd June) from department A 15 tonnes.
                     16  Issues 180 tonnes.
                     20  Received from supplier 240 tonnes @ ` 195.

                     24  Issues 300 tonnes.
                     25  Received from supplier 320 tonnes @ ` 200.




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