Methods of Pricing Material Issues:

FIFO: First In First Out

This method is based on the assumption that materials which
are purchased first are issued first to the production
department. Under this method the closing stock of
materials are valued at present market price. The materials
are issued according to the chronological order of purchase
or receipts from the beginning of the period.
Advantages:
1. It is based on the realistic assumption that materials
which are purchased first are issued first as per the
respective purchase rate.
2. Materials are issued at actual cost price.
3. Closing stock is valued at current market price.
4. This method is simple and easy to understand.
5. It is good for flow moving materials.
Disadvantages:
1. Materials are not issued to the production according the
current market price.
2. When transactions are huge in number there is a
possibility of clerical errors in calculating the price.
3. When materials are returned to the stores, they are
treated as new purchases for the next issue.
Receipts Issues Balance
Particular GR Qt MR Qt Qt Amoun
Date s N y Rate p.u. Amount N y Rate p.u. Amount y Rate p.u. t
 FIFO method (without returns and losses)
1. The following information is extracted from the stores
ledger:
Issue of
materials
Sept 1 Opening balance 500 units at Rs. Sept 9 500
10 units
6 Purchases 100 units at Rs. 11 22 500 u
20 Purchases 700 units at Rs. 12 30 500 u
27 Purchases 400 units at Rs. 13
Oct 13 Purchases 1000 units at Rs. 14 Oct 15 500 u
20 Purchases 400 units at Rs. 15 22 500 u
Nov 17 Purchases 400 units at Rs. 16 Nov 11 500 u
Issues are to be priced on the principle of FIFO. Write the
stores ledger account.

2. The following transactions occurred in the month of Jan,

Feb, March 2013.
Month date Particulars Units Rate P.U.
Jan 2 Purchases 4000 4
25 Purchases 500 5
Feb 5 Issues 2000
10 Purchases 6000 6
12 Issues 4000
Mar 2 Issues 1000
5 Issues 2000
15 Purchases 4500 5.5
 20 Issues 3000

From the above prepare a stores ledger account using

FIFO Method.
Ans. 3000 Units @ 5.5 Valued 16500.

3. FIFO with returns and losses of materials

The following is an extract of the record of receipts and
issues of sulphur in a chemical factory during June 2021.

2021 Opening balance 100 tons @ Rs. 200

June 1
8 Issued 50 tons
14 Received from supplier 40 tons @ Rs. 190
17 Issued 36 tons
21 Received from supplier 48 tons @ Rs. 180
24 Issued 60 tons
25 Returned to suppliers 10 tons out of goods
received on 21st June
26 Received from supplier 64 tons @ Rs. 190
29 Issued 40 tons
30 Returned from department 6 tons @ Rs. 190
The stock verifier of the factory had found a shortage of
2 tons on 23rd June and left a note accordingly. You are
required to prepare stores ledger account under FIFO
method.

4. From the following data prepare a stores ledger account

in a proper format using FIFO method.
 2013 Opening stock 400 units at Rs. 8 p.u.
Nov 1
1 Received 800 units at 7.8 p.u.
8 Issued to production department 480 units
10 Issued to production department 320 units
12 Received 1000 units at 7.7 p.u.
15 Issued to production department 800 units
16 Received 500 units at 7.5 p.u.
19 Received 1200 units at 7 p.u.
21 Issued to production department 700 units
24 Issued to production department 520 units
27 Issued to production department 680 units
28 Refund of surplus from work order 50 units
issued on 10th Nov 2013.
On 30th November 2013, the stock verification report
revealed a shortage of 20 units.
Ans.
Units R.U. Rs.
380 7 2660
50 7.8 390
430 3050

LIFO ( LAST IN FIRST OUT):

This method is based on the assumption that materials which are
received at last (latest) are issued first to the production department.
Under this method the closing stock of materials are not valued at
current market price. The materials are issued according to the
reverse sequential order of purchase.
Advantages:
1. Materials are issued according to the current market price.
 2. Materials are issued at actual cost price.
3. It is most suitable when prices are rising.
4. This method is better matching of cost and revenue.
Disadvantages:
1. Closing stock is not valued on the basis of current market price.
2. When transactions are huge, calculation of issue price becomes
complicated.
3. Complicated calculation will invite clerical errors.
LIFO Method (without returns and losses)
1. The following information is provided by Coorg Coffee
Manufacturing unit for the fortnight of April 2016.
Material A:

Stock on 100 units at Rs. 5 p.u.

purchases:
1.4.16
5.4.16 300 units at Rs. 6 p.u.
8.4.16 500 units at Rs. 7 p.u.
12.4.16 600 units at Rs. 8 p.u.
Issues: 250 units
6.4.16
10.4.16 400 units
14.4.16 500 units
Calculate the value of materials consumed during the period
under LIFO.

2. From the following particulars prepare stores ledger a/c under

LIFO and FIFO methods.
March Opening stock 200 tons at Rs. 480 per ton.
1
6 Issued 140 tons
7 Purchase 350 tons at Rs. 460 per ton
8 Loss due to deterioration in quality and
 transferred to scrap 30 tons
9 Issued 80 tons
14 Issued 210 tons
17 Purchased 200 tons at Rs. 480 per ton
20 Issued 280 tons
25 Purchased 280 tons at Rs. 470 per ton
28 Issued 280 tons
Excess found in stock 43 tons due to wrong weighing on 21st
March 2014.

Ans. LIFO :
Tonne Rate Rs.
s P.U.
10 480 4800
43 480 20640
53 25440

FIFO: Closing stock 53 tonnes valued at Rs. 24910.

LIFO METHOD (WITH RETURNS AND LOSSES OF

MATERIALS)

3. The particulars of receipts and issues of a certain material during

Jan 2021 are given below:
Date Receipts Units Rate Issues
p.u.
Date Units
Jan Purchased 450 25 Jan 600
6 3
12 Purchased 600 24.5 8 500
15 Returned from 50 - 13 250
workshop (issued
on Jan 3)
22 Purchased 350 26 27 500
 28 Purchased 500 27 31 300
Further information:
Opening balance on 1.1.2021 was 1000 units @ Rs. 24 p.u. A
shortage of 15 units was noticed and recorded on 9.1.2021.
Prepare stores ledger a/c for the month of Jan 2001 under LIFO
method.

Ans.
Tonne Rate Rs.
s P.U.
285 24 6840
200 27 5400

Weighted average price method:

Under this method, materials are issued at an average price,
which is calculated by dividing the total cost of materials in
stock by the total quantity of materials in stock. Thus, this
method considers both the quantity and respective prices.
Advantages:
1. It is advantageous where the prices vary widely as its use
evens out the effect of these wide variations.
2. It gives more accurate results than simple average price
because it considers quantities as well as prices of purchases.
3. The stock balance reflects fair prices that may be taken for
financial statements.
Disadvantages:
1. The average rate is influenced by the high or low prices in the
past and does not reflect purely current conditions.
 2. Revised rate becomes necessary even when there are returns
from shopfloor, though there may not be any purchases.
1. Prepare a stores ledger from the following information under
weighted average methods.
Dates Receipts in Rate Issues
units
2014 Mar 02 200 2 -
10 300 2.4 -
15 - - 250
18 250 2.6 -
20 - - 200