Highest in First Out Method (HIFO) According to this method, the inventory of materials or goods should be valued at the lowest possible prices. Materials or goods purchased at the highest prices are treated as being first issued/sold irrespective of the date of purchase. This method is very suitable when the market is constantly fluctuating because cost of heavily priced materials or goods is recovered from the production or sales at the earliest However, the method involves too many calculations as is the case of FIFO or LIFO method. The method has therefore, not been adopted widely. Base Stock Method The method is based on the contention that each enterprise maintains at all times a minimum quantity of materials or finished goods in its stock. This quantity is termed as base stock. The base stock is deemed to have been created out of the first lot purchased and, therefore, it is always valued at this price and is carried forward as a fixed asset. Any quantity over and above the base stock is valued in accordance with any other appropriate method. As this method aims at matching current costs to current sales, the LIFO method will be most suitable for valuing stock of materials or finished goods other than the base stock. The base stock method has the advantage of charging out materials/goods at actual cost Its other merits or demerits will depend on the method which is used for valuing materials other than the base stock.
Next if First out Method (NIFO)
The method attempts to value materials issues or goods sold at an actual price which is as near as possible to the market price. Under this method the issues are made or cost of goods sold is taken ai the next price, i.e., the price of materials or goods which has been ordered but not yet received. In other words, issues of goods for further processing or sale are at the latest price at which the company has been committed even though materi.als’goods have not yet been physically received. This method is better than marked price method under which every time when materials or goods are issued or sold, their market price will have to be ascertained. In case of this method materials or goods will. be issued at the price at which anew order has been placed and this price will hold good for all future issues till a next order is placed. For example, 100 units of material A purchased @ Re I per unit are lying in the store and an order for another 100 units @ Rs 1.25 has already been placed. If a requisition of 50 units from a department is made, they will be issued to the department at Rs 1.25 per unit (i.e., the price at which the materials are yet to be received). The value of inventory on a particular date is ascertained by deducting the cost of materials issued or goods sold from the total value of materials or goods purchased. Calculations of issue prices are complicated in this method and therefore the method is not widely used.
Weighted Average Price Method
This method is based on the presumption that once the materials are put into a common bin, they lose their separate identity. Hence, the inventory consists of no specific batch of goods. The inventory is thus priced on the basis of average prices paid for the goods, weighted according to the quantity purchased at each price. Weighted Average Price Method is very popular on account of its being based on the total quantity and value of malcrials purchased besides reducing number of calculations. As a matter of fact the new average price is to be calculated only when a fresh purchase of materials is made in place of calculating it every now and then as is the case with the FIFO, LIFO, NIFO or HIFO methods. However, in case of this method different prices of materials are charged from production particularly when the frequency of purchases and issues/sales is quite large and the concern is following perpetual inventory system.