Page 52 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 3: Material Control

Jan 15 Requisition --------------------- 100 8.50 850 150 8.20 1,230 Notes
slip No
Jan 19 Requisition ----------------------- 100 8.20 820 50 8.20 410
slip No
Jan 20 Receipt No 300 9 2,700 -------------------------- 50 8.20 410
300 9 2,700
Jan 25 Receipt No 400 8 3,200 ------------------------------ 50 8.20 410
300 9 2,700
400 8 3,200
Jan 26 Requisition ---------------------- 8.20 410 150 9 1,350
}
No 200 50 9 1,350 400 8 3,200
150
Jan 30 Requisition ---------------------- 9 1,350 Closing stock value
}
No 250 150 8 800 300 8 2,400
100
3.3.2 Last in First out (LIFO)

Under this method, the issues are made at the price of latest consignment. The current cost of the
jobs/work orders are denominated only in terms of the price of the latest consignment. During
the rising prices, this is considered to be a most suitable method.
This method helps the management to quote competitive prices on the basis of latest consignments.

This method was considered by all the firms in the US as a predominant one over the others in

fixing the price on the commodities competitively during the post Second World War years.
Advantages

It has greater applicability only when the transactions are very minimal and prices are
steady in the environment.

The recent purchase through the latest consignment reflects the current market prices in
the cost of sales of the fi rm.
The issue of materials through latest consignments are denominated in terms of higher

prices; led to illustrate lesser profits due to higher charge during the production and lessens
the income tax burden.

Disadvantages

Greater possibility for more number of clerical errors.

This method also helps to compare the jobs or works.
There may be a possibility of either overstating or understating the value of the stock in
the balance sheet.

Example: The early Example’s information has been considered for LIFO.

The first step is to highlight the opening balance under the balance column of the store ledger of
LIFO method.
The next step is to enter the receipts if any receipts are made initially.

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