Page 51 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes Disadvantages

There may be the possibility of clerical errors at the moment of maintaining the stock
register due to price fl uctuations.
The comparison between the jobs cannot be made possible due to various prices involved.
The materials issued for one job is at earlier prices which do not agree with the materials
issued for another job at later prices. When the price of materials do not agree with each
other, they will not be considered for comparison.

The issue prices do not reflect the market price due to upward price trend. The main reason
is that the issues are only due to earliest consignments.

Example: Prepare stores ledger account on the basis of FIFO.
Jan 1 Opening balance 500 units @ ` 8
Jan 5 Received from vendor 200 units @ ` 8.5

Jan 12 Received from vendor 150 units @ ` 8.20
Jan 20 Received from vendor 300 units @ ` 9
Jan 25 Received from vendor 400 units @ ` 8
Issues of materials were as follows:

Jan 10–400 units Jan 14–200 units Jan 15–100 units
Jan 19–100 units Jan 26–200 units Jan 30–250 units

The first step is to mention the opening balance of materials under the balance side of the stores

ledger account.
The most important step is to issue the materials from the available source of materials in the
hands of the firm. If the available source of materials is available in terms of various price

categories, the issues are to be made from the earliest consignments till the requirement of issue
is to be met. If the issue is not met within the single price band, the next price bands are to be
considered for the fulfillment of the requirements of the issue.

The remaining value of the materials at the end of the transaction is known as value of the closing
stock.
Stores Ledger Account First In First Out (FIFO)

Date Particulars Receipts Issues Balance
Qty. Total Unit Qty. Total Unit Qty. Total Unit
cost ` cost ` cost ` cost ` cost ` cost `
Jan 1 Opening --------------------- ------------------------- 500 8 4,000
balance
Jan 4 Requisition 200 8 1,600 300 8 2,400
Slip No
Jan 5 Receipt No 200 8.50 1,700 ------------------ 300 8 2,400
200 8.50 1,700
}
Jan 10 Requisition -------------------- 400 300 8 2,400 100 8.50 850
Slip No 100 8.50 850
Jan 12 Receipt No 150 8.20 1,230 -------------------------- 100 8.50 850
150 8.20 1,230
Contd...

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