Page 54 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 3: Material Control

Notes
Example: The stock of material M/s Murugan & Co. as on January 2004 is 1000 units at
` 2 per unit. The following purchases and issues of this item were made subsequently:

Date Receipts Qty. Units Rate per unit ` Issue Qty Units
Jan 6 400
Jan 10 800 2.20
Jan 15 600 2.40.
Jan 20 1000
Jan 21 400
Jan 24 1000 2.60
Jan 25 600
Jan 28 400

Stores Ledger (Highest In First Out)
Date Particulars Receipts Issues Balance
Qty. Total Unit Qty. Total cost ` Unit Qty. Total Unit
cost ` cost ` cost ` cost ` cost `
Jan 1 Opening balance --------------------- --------------------- 1000 2 2,000
Jan 6 Requisition Slip ------------------------ 400 2 800 600 2 1,200
No
Jan 10 Receipt No 800 2.20 1,760 ------------------ 600 2 1,200
800 2.20 1,760
Jan 15 Receipt No 600 2.40 1,440 ---------------------- 600 2.40 1,440
800 2.20 1,760
600 2 1,200
Jan 20 Requisition slip No --------------------- 2.40 1,440 400 2.20 880
}
1000 600 2.20 880 600 2 1,200
400
Jan 21 Requisition slip No ----------------------- 400 2.20 880 600 2 1,200
Jan 24 Receipt No 1000 2.60 2,600 --------------------- 1000 2.60 2,600
600 2 1,200
Jan 25 Requisition No 600 2.60 1,560 400 2.60 1,040
---------------------------- 600 2 1,200
Jan 28 ------------------------ 400 2.60 1,040 Closing Stock Value
Requisition No 600 2 1,200
The closing stock is priced at ` 2 per Kg which leads to a minimum value of ` 1,200.

3.3.4 Method of Average

In practice, the issue of materials cannot be made from any singular lot purchases. Normally
speaking, the materials are grouped together in categories on the basis of similar characteristics
but not on the basis of purchase price. If the materials are grouped together irrespective of
purchase price, the issues should be done appropriately on the basis of average cost method.
The average cost method is bifurcated as follows:

Simple Average Method
Weighted Average Method
Base Stock Method

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