PRICING OF RAW MATERIAL ISSUES

a)    FIFO: Under this method issues are priced on the assumption that materials purchased first are issued first. The actual physical movement of materials may or may not follow this pattern.

b)    LIFO: Under this method issues are priced on the assumption that materials purchased last are issued first. The actual physical movement of materials may not follow this pattern.

c)    Simple Averaqe Method: Before each issue a simple average of the prices is calculated by dividing all the prices of different lots of a material in stock at the time of issue by the total number of prices (In conjunction with FIFO).

d)    Weiqhted Averaqe Method: This takes into account the price as well as the quantity of different lots of a material in store. Before each issue the weighted average price cost is calculated by dividing the total book value of materials in hand by the total quantity of materials in stock before the issue (To be calculated at each purchase).

e)    Periodical Simple Averaqe Method: This is similar to simple average method with the difference that the issue price is calculated only periodically (weekly, fortnightly or monthly etc.) and not at the time of each purchase. For the specified period the issue price remains unchanged. The work

of pricing of issues of materials is done only at the end of the period. During the period only the quantities of material issued are entered in store ledger as and when issues are made. Price of opening stock is excluded both in the numerator and denominator.

f)     Periodical Weiqhted Averaqe Method: This is similar to weighted average method with the difference that the issue price is calculated only periodically (weekly, fortnightly or monthly etc.) and not at the time of each purchase. For the specified period the issue price remains unchanged. The work of pricing of issues of materials is done only at the end of the period. During the period only the quantities of material issued are entered in store ledger as and when issues are made. Price of opening stock is excluded both in the numerator and denominator.

g)    Base Stock Method: Base stock represents the minimum stock of materials required to be maintained at all times. No issue shall be made out of this stock. The quantity of materials in excess of the base stock is available for production, while the base stock is used only in case of emergency. The excess is priced in conjunction with one of the other methods such as FIFO or LIFO. Thus this method can't be used independently.