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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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