Page 50 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 3: Material Control

Jan 21 400 Notes
Jan 24 1000 5.20
Jan 25 600
Jan 28 400
1. Which method of stores ledger is most suitable to the domestic market? How are the
issue prices of materials going to penetrate the perfect competition at the domestic
level?
2. Which method is considered to be most suitable for the export of goods? How will

the issue price of materials help the firm to reap greater profits through the export of
goods?
3.3 Pricing of Material Issues

The important operation of the inventory management is inventory valuation through stores
register. Inventory valuation under pricing is being executed through the following various
methodologies:
1. First in First out (FIFO)
2. Last in First out (LIFO)

3. Highest in First out (HIFO)
4. Simple Average Method (SAM)
5. Weighted Average Method (WAM)
6. Base Stock Method

3.3.1 First in First out (FIFO)

The material which is first issued from the earliest consignment on hand and priced at the cost at

which that consignment was placed in stores.

The materials which are received at first to be issued fi rst.
This is the method suitable for the trend of falling prices in the market.

Did u know? Why it is considered as a suitable method for falling prices?
The issues of the materials are made at higher prices against the low price of replacement
of materials. The low price of replacement of materials against the issues is possible only
during the trend of falling prices.

Advantages

It is very simple to understand.

It is issued on the basis of purchases.
The materials are issued at purchase price.
It is most advantageous during the moment of falling prices due to lower cost of replacement
through purchases against the issues.

The closing stock reflects the market price due to recent purchase of materials.

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