CBSE Sample Papers

CBSE Sample Papers from CBSEtuts.com

Inventory cost

April 28, 2019 by admin Leave a Comment

Inventory cost The term Inventory includes (I) Stock of raw materials, (ii) Stock of work-in-progress, and (iii) Stock of finished Goods. The computation of the cost of inventory is also a tedious process. The vaftiation of tbe stock of raw materials will depend upon the method of pricing materials issues followed by the business. Materials may be issued to production according to First In First Out ([FIFO) Method, Last In First Out (LIFO) Method, Weighted Average Price Method, etc. In each of these cases, the value of the inventory of raw materials may widuly differ. This will be clear with the help of the following example.

A business buys raw materials in two different lots. In the first lot 1,000 units are purchased @ Rs 10 per unit. In the second lot, 2,000 units are purchased @ Rs 12 per unit. In case the stock of raw materials at the cod of the accounting period is of 1,000 units, the value of the inventory according to each of the methods stated above will be as follows:

FIFO method:

1,000 Units @ Ps 12 per unit = Rs 12,000

(Since materials first purchased will be taken to have been issued to production first of all, the inventory of raw material will, therefore, consist of latest purchases).

LIFO method:

l,000UuiLs@RslOperunit=Rs 10,000

(Since materials purchased in the last will be taken to have been issued to production first of all, the inventory will, therefore, consist of the earliest purchases).

Weighted Average Price Method:

1,000 Units @ Ps 11.333 = Rs 11,333

(The total units purchased are 3,000 for a total cost of Es 34,000. This gives a

weighted average priceRs 11.333 per unit).

Filed Under: Accounting Tagged With: FIFO method, Inventory cost, LIFO method, Weighted Average Price Method

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Recent Posts

  • Note Making Class 11 CBSE Format, Examples
  • Unseen Passage For Class 11 Literary CBSE With Answers
  • Unseen Passage for Class 11 Discursive CBSE with Answers
  • Unseen Passage for Class 11 Factual CBSE With Answers
  • Rearrange Jumbled Sentences for Class 11 CBSE with Answers
  • Error Correction Exercises for Class 11 CBSE with Answers
  • Sentence Transformation Exercises for Class 11 CBSE with Answers
  • Editing Exercises for Class 11 CBSE with Answers
  • Active and Passive Voice Exercises for Class 11 with Answers CBSE
  • Tenses Exercises for Class 11 CBSE With Answers

Copyright © 2021 · Magazine Pro Theme on Genesis Framework · WordPress · Log in