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Which method of pricing of material issues is suitable when prices are falling?

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Which method of pricing of material issues is suitable when prices are falling?

When prices are rising, LIFO shows lower profit because higher costs are matched against current revenues. Tax liability is thus reduced. 5. When prices are falling When prices of materials are declining, FIFO shows lower profit and thus lower tax liability.

What is material pricing?

Pricing of materials refers to valuation of materials issued by the stores department for the production process. Pricing of materials should be done by adopting the method which is suitable for nature of materials and business itself.

What factors have to be considered for adopting a method for the pricing of material?

Selection of a Proper Pricing Method of Materials

  • The nature of production — whether intermittent or continuous.
  • Volume/frequency of receipts of materials.
  • Variations and fluctuations in prices and their nature.
  • Frequency of issue of material.
  • Stock turnover rate.
  • Effect of pricing method on tax payable.

In which of the following methods issues of materials are priced at predetermined rate?

The average price for all the materials issued during the period is computed as follows: Page 6 8. Standard Cost Method: Under this method, material issues are priced at a predetermined standard issue price.

What are the methods of issue of material?

Here we detail about the following eight methods of pricing of issue of materials: (1) Replacement Cost Method, (2) Fixed Price Method, (3) Standard Price Method, (4) Inflated Price Method, (5) Highest in First Out (HIFO) Method, (6) Next-in-First Out (NIFO) Method, (7) Moving Average Method and (8) Base Stock Method.

What is pricing of material issues?

Materials purchased are kept in stores and issued to different jobs or work orders. These jobs or work crders are charged with the cost of materials issued to them. This is called pricing of material issues. Prices paid for purchases made at different times may be different.

How is material cost calculated?

To calculate the cost of materials used, you get the sum of every direct material cost consumed in the accounting period. The account for direct materials incorporates the cost of materials used and not materials purchased to estimate the production cost.

What are the different methods of pricing of issue of materials?

Pricing of Issues of Materials (8 Methods)

  • Replacement Cost or Market Price on the Date of Issue: ADVERTISEMENTS:
  • Fixed Price:
  • Standard Price:
  • Inflated Price:
  • Highest in First Out (HIFO) Method:
  • Next-in-First out (NIFO) Method:
  • Moving Average Method:
  • Base Stock Method:

How do I get store and issue materials?

In general, the issue of material goes through the following stages:

  1. Allocate material in the warehouse. A planned production order results in planned inventory transactions.
  2. Specify quantity to be issued.
  3. Release material.
  4. Carry out the warehousing procedure.
  5. Receive material.

Which is the best method of pricing issue of materials?

Here we detail about the following eight methods of pricing of issue of materials: (1) Replacement Cost Method, (2) Fixed Price Method, (3) Standard Price Method, (4) Inflated Price Method, (5) Highest in First Out (HIFO) Method, (6) Next-in-First Out (NIFO) Method, (7) Moving Average Method and (8) Base Stock Method.

How does the cost of materials relate to cost of production?

If by the time the materials are received, the production is completed, the production cost of materials shows the value of most current purchases. This method is almost similar to LIFO method but is more forward looking and under this method, cost of production reflects the current prices of materials. 7. Moving Average Method:

How is a specified quantity of material priced?

Under this method, a specified quantity of material is always held in stock and is priced at its original cost as buffer or base stock; and any issue of materials above the base stock quantity is priced under any one of the methods discussed above. This method indicates how prices are moving over a longer period of time.

When is it useful to use cost price method?

This method is also useful when transactions are not too many and prices of materials are fairly steady. 1.