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Selection of Material Pricing Method The various method of pricing issues have merits and demerits. The choice of any method depends on many factors which
Selection of Material Pricing Method The various method of pricing issues have merits and demerits. The choice of any method depends on many factors which can be summarised as under: (i) the frequency of purchases. (ii) price fluctuations and its range. a29 (ii) method of stock valuation (iv) customs and practices followed in the industry, whether uniform costing system is being followed (v) stock turnover rate. (vi) percentage cost of raw materials to total cost of products. (vii) economic order quantity. (vii) effect of pricing method on tax payable. (ix) the accuracy required and the accuracy which would be obtained. (x) clerical work involved. (xi) costing system adopted. (xii) traceability of issue to purchase lot. (xiii) frequency of receipts and issues. (xiv) whether standard costing system is adopted. (xv) the nature of business. (xvi) the possibility of using different methods for different classes of items. In addition to the above, the following factors have to be satisfied: (i) The purchase cost is covered. (ii) The issue price reflects the market price, (ii) There is no significant variation in cost from period to period, and (iv) The system does not necessitate heavy adjustment at the time of valuing closing stock. Illustration 8 Following is the information by XYZ company Ltd. Related to first week of December, 2013: The transactions in connection with the materials are as follows: Days Receipts Issues Units (units) Rate per unit 15.00 1st 40 2nd 20 16.50 3rd - 30 4th 50 17.10 5th - 20 6th 40 Calculate the cost of materials issued under (0) FIFO METHOD: () LIFO method; and (in) Weighted average method of issue of materials nad value of closing stock under the above methods
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