COST ACCOUNTING

UNIT 2 - METHODS OF PRICING MATERIAL ISSUES

1. FIFO – FIRST IN FIRST OUT

This method is based on the assumptions that materials which are purchased first are issued first. It uses
the price of the first batch of materials purchased for all issues until all units from this batch have been
issued. After the first batch is fully issued, the price of the next batch received becomes the issue price.
Upon this batch also fully used, the price of the still next batch is used for pricing and so on. In other
words, the materials are issued at the oldest cost price listed in the stores ledger account.

Two points to be noted:

a) Materials are charged at the actual cost price and at the oldest price of materials in stock.
b) Stock of materials in hand is valued at the latest purchase prices.

FORMAT

Stores Ledger Account – FIFO METHOD

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Amt
Rs. Rs. Rs.
(Rs) (Rs) (Rs)

Problems
1. The following transaction occur in the purchase and issue of a material:
Jan 2 Purchased 4000 units @ Rs 4.00 per unit
20 Purchased 500 units @ Rs. 5.00 per unit
Feb 5 Issued 2000 units
10 Purchased 6000 units @ Rs 6.00 per unit
12 Issued 4000 units
March 2 Issued 1000 units
5 Issued 2000 units
15 Purchased 4500 units @ Rs 5.50 per unit
20 Issued 3000 units
From the above, prepare the stores ledger account using FIFO method.

1 Prof SOGARA BI
HEAD, DEPARTMENT OF COMMERCE(UG)
KRUPANIDHI DEGREE COLLEGE
 Solution:

Stores Ledger Account – FIFO METHOD

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Amt
(Rs) Rs. Rs.
(Rs) (Rs) (Rs)
Jan 2 4,000 4.00 16,000 - - - 4,000 4.00 16,000

Jan 20 500 5.00 2500 - - - 4,000 4.00 16,000

500 5.00 2,500
Feb 5
- - - 2000 4.00 8,000 2,000 4.00 8,000
500 5.00 2500
Feb 10 6,000 6.00 36,000 - - - 2,000 4.00 8000
500 5.00 2500
Feb 12 - - - 4,000 6,000 6.00 36,000
(2000 4.00 8,000
(500 5.00 2500
(1500 6.00 9,000 4,500 6.00 27,000
Mar 2 - - - 1000 6.00 6000 3500 6.00 21,000

Mar 5 - - - 2000 6.00 12,000 1500 6.00 9,000

Mar 15
4500 5.50 24,750 - - - 1500 6.00 9000
4500 5.50 24750
Mar 20 - - - 3000
(1500 6.00 9000
(1500 5.50 8250 3,000 5.50 16,500

Balance of stock in hand 3,000 units at Rs 5.50 = Rs 16,500

2 Prof SOGARA BI
HEAD, DEPARTMENT OF COMMERCE(UG)
KRUPANIDHI DEGREE COLLEGE
 2) Prepare FIFO Method
Receipts:
Date Quantity Rate
4 Feb 200 kg Rs 10.00 per kg
18 Feb 300 kg Rs 12.00 per kg
22 Feb 100 kg Rs 16.00 per kg
Issues:

Date Quantity
6 Feb 100 kg
20 Feb 200 kg
25 Feb 200 kg
Solution:

Stores Ledger Account – FIFO METHOD

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Amt
Rs. Rs. Rs.
(Rs) (Rs) (Rs)
4 Feb 200 10.00 2,000 - - - 200 10.00 2,000

6 Feb - - - 100 10.00 1000 100 10.00 1,000

18 Feb 300 12.00 3,600 - - - 100 10.00 1,000

300 12.00 3,600
20 Feb
- - - 200
(100 10.00 1,000
(100 12.00 1200 200 12.00 2,400
100 16.00 1600 - - - 200 12.00 2,400
22 Feb
100 16.00 1600

25 Feb - - - 200
(200 12.00 2,400 100 16.00 1600

Balance of stock in hand 100 units at Rs 16.00 = Rs 1600

3 Prof SOGARA BI
HEAD, DEPARTMENT OF COMMERCE(UG)
KRUPANIDHI DEGREE COLLEGE
 3) Prepare FIFO Method:
Date Receipts Rate Units Issues
1/3/2016 20 units 25 -
9/3/2016 30 units 30 -
20/3/2016 - - 5 units
24/3/2016 40 units 32 -
26/3/2016 - - 30 units
Solution:

Stores Ledger Account – FIFO METHOD

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Amt
Rs. Rs. Rs.
(Rs) (Rs) (Rs)
1/3/2016 20 25 500 - - - 20 25.00 500

9/3/2016 30 30 900 - - - 20 25.00 500

30 30.00 900

20/3/2016 - - - 5 25 125 15 25.00 375

30 30.00 900
40 32.00 1280 - - - 15 25.00 375
24/3/2016
30 30.00 900
40 32.00 1280
- - - 30
26/3/2016
(15 25 375
(15 30.00 450 15 30.00 450
40 32.00 1280

Balance of Stock in hand = 15 units at Rs 30 = Rs 450

40 units at Rs 32 = Rs 1280
Total 55 units = Rs 1,730

4 Prof SOGARA BI
HEAD, DEPARTMENT OF COMMERCE(UG)
KRUPANIDHI DEGREE COLLEGE
 4. The following is the record of receipts and issues of a certain material in the factory during a
week:
April
1. Opening Balance 50 tonnes @ Rs 10 per tonne
Issued 30 tonnes
2. Received 60 tonnes @ Rs 10.20 per tone
3. Issued 25 tonnes (Stock verification reveals loss of 1 tonne)
4. Received back from orders 10 tonnes (Previously issued at Rs 9.15 per tonne)
5. Issued 40 tonnes
6. Received 22 tonnes @ Rs 10.30 per tone
7. Issued 38 tonnes
At what price will you issue the materials? Use FIFO methods for this purpose.

Stores Ledger Account – FIFO METHOD

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Amt
Rs. Rs. Rs.
Tonnes (Rs) Tonnes (Rs) Tonnes (Rs)
April 1 - - - - - 50 10.00 500

April 1 - - - 10.00 300 20 10.00 200

April 2
60 10.20 612 - - 20 10.00 200
60 10.20 612
April 3 - - -
10.00 200
10.20 51 55 10.20 561
April 3 - - - 10.20 10.20 54 10.20 550.80
10 9.15 91.50 - - 54 10.20 550.80
April 4
10 9.15 91.50
- - - 10.20 408 14 10.20 142.80
April 5
10 9.15 91.50
April 6 22 10.30 226.60 - - 14 10.20 142.80
10 9.15 91.50

April 7 - - - 22 10.30 226.60

10.20 142.80
9.15 91.50
10.30 144.2 8 10.30 82.4

5 Prof SOGARA BI
HEAD, DEPARTMENT OF COMMERCE(UG)
KRUPANIDHI DEGREE COLLEGE
Note: Materials received back from order on April 4 has been treated as New Purchase.

Closing Balance = 8 tonnes at Rs 10.30 = Rs 82.40

5. The following transaction took place in respect of a material item. Prepare stores ledger
accounts using FIFO
1/7 opening Stock 500 units @ Rs 20 each
4/7 Purchased GRN 574 400 units @ Rs 21 each
6/7 Issued SR 251 600 Units
8/7 Purchased GRN 578 800 Units @ Rs 24 each
9/7 Issued SR 258 500
13/7 Issued SR 262 300
24/7 Purchased GRN 584 500 Units @ Rs 25 each
28/7 Issued SR 269 400 Units

Solution:

Note: If reference number is given then make (particulars column) to show reference number. If
reference number is not given then particulars column is not required.

6 Prof SOGARA BI
HEAD, DEPARTMENT OF COMMERCE(UG)
KRUPANIDHI DEGREE COLLEGE
7 Prof SOGARA BI
HEAD, DEPARTMENT OF COMMERCE(UG)
KRUPANIDHI DEGREE COLLEGE