Material Cost: After Studying This Chapter, You Would Be Able To
Material Cost: After Studying This Chapter, You Would Be Able To
Material Cost: After Studying This Chapter, You Would Be Able To
MATERIAL COST
LEARNING OUTCOMES
After studying this chapter, you would be able to-
State the meaning, need and importance of materials,
Discuss the procedures and documentations involved in
procuring, storing and issuing material.
Discuss the various inventory control techniques and
determination of various stock levels.
Compute Economic Order Quantity (EOQ) and apply the
EOQ to determine the optimum order quantity.
Discuss the various methods of inventory accounting and
Prepare stock ledger/ account.
Identify and explain normal and abnormal loss and its
accounting treatment.
2.1 INTRODUCTION
We have acquired a basic knowledge about the concepts, objectives, advantages,
methods and elements of cost. We shall now study each element of cost
separately beginning with material cost. The general meaning of material is all
commodities/ physical objects used to make the final product. It may be
direct or indirect.
(i) Direct Materials: Materials, cost of which can be directly attributable to the
end product for which it is being used, in an economically feasible way.
(ii) Indirect Materials: The materials which are not directly attributable to a
particular final product.
Direct Materials constitute a significant part for manufacturing and production of
a goods. Being an input and a significant cost element, it requires adequate
management attention. Cost control starts from here, and for this purpose it is
necessary that the principle of 3Es (Economy, Efficiency and Effectiveness) i.e.
economy in procurement, efficiency in handling and processing the material and
effectiveness in producing desired output as per the standard, is also applied for
this cost element. Importance of proper recording and control of material are as
follows:
(a) Quality of final product: The quality of output depends on the quality of
inputs.
(b) Price of the final product: Material constitutes a significant part of any
product and the cost of final product is directly related with cost of materials
used to produce the product.
(c) Production continuity: The production process should run smoothly and
should not be paused for the want of materials. To avoid production
interruptions, an adequate level of stock of materials should be maintained.
(d) Cost of Stock holding and stock-out: An entity has to incur stock holding
costs in the form of interest and/or opportunity cost for the fund used, stock
handling losses like evaporation, obsolescence etc. Under-stocking causes in loss
of revenue due to stock-out and breach of commitment.
(e) Wastage and other losses: While handling and processing of materials,
some wastage and loss arise. Based on the nature of material and process, these
are classified as normal and abnormal for efficient utilisation and control.
(f) Regular information about resources: A regular and updated information
on availability and utilisation of materials are necessary for the entity for timely
and informed decision making.
It should be noted that this requires constant availability of every item that may
be needed howsoever small its cost may be.
(ii) Optimisation of Material Cost: Seeing to it that all the materials and
stores are acquired at the lowest possible price considering the quality that is
required and considering other relevant factors like reliability in respect of
delivery, etc. Holding cost should also require to be minimized.
(iii) Reduction in Wastages: Avoidance of unnecessary losses and wastages
that may arise from deterioration in quality due to defective or long storage or
from obsolescence. It may be noted that losses and wastages in the process of
manufacture, concern the production department.
(iv) Adequate Information: Maintenance of proper records to ensure that reliable
information is available for all items of materials and stores that not only helps in
detecting losses and pilferages but also facilitates proper production planning.
(v) Completion of order in time: Proper material management is very
necessary for fulfilling orders of the firm. This adds to the goodwill of the firm.
2.2.2 Requirements of material control
Material control requirements can be summarised as follows:
1. Proper co-ordination of all departments involved viz., finance, purchasing,
receiving, inspection, storage, accounting and payment.
2. Determining purchase procedure to see that purchases are made, after making
suitable enquiries, at the most favourable terms to the firm.
3. Use of standard forms for placing the order, noting receipt of goods,
authorising issue of the materials etc.
4. Preparation of budgets concerning materials, supplies and equipment to
ensure economy in purchasing and use of materials.
5. Operation of a system of internal check so that all transactions involving
materials, supplies and equipment purchases are properly approved and
automatically checked.
6. Storage of all materials and supplies in a well designated location with proper
safeguards.
7. Operation of a system of perpetual inventory together with continuous stock
checking so that it is possible to determine at any time the amount and
value of each kind of material in stock.
Material Control
[The name of the departments and documents shown in the diagram are for illustrative purpose only]
ILLUSTRATION 1
An invoice in respect of a consignment of chemicals A and B provides the following
information:
(`)
Chemical A: 10,000 kgs. at ` 10 per kg. 1,00,000
Chemical B: 8,000 kgs. at ` 13 per kg. 1,04,000
Basic custom duty @ 10% (Credit is not allowed) 20,400
Railway freight 3,840
Total cost 2,28,240
A shortage of 500 kgs. in chemical A and 320 kgs. in chemical B is noticed due to
normal breakages. You are required to COMPUTE the rate per kg. of each chemical,
assuming a provision of 2% for further deterioration.
SOLUTION
Working:
Computation of effective quantity of each chemical available for use
ILLUSTRATION 2
At WHAT price per unit would Part No. A 32 be entered in the Stores Ledger, if the
following invoice was received from a supplier:
Invoice (` )
200 units Part No. A 32 @ ` 5 1,000.00
Less: 20% discount (200.00)
800.00
Add: IGST @ 12% 96.00
896.00
Add: Packing charges (5 non-returnable boxes) 50.00
946.00
(i) A 2 per cent cash discount will be given if payment is made in 30 days.
(ii) Documents substantiating payment of IGST is enclosed for claiming Input
credit.
SOLUTION
Computation of cost per unit
(`)
Net purchase Price 800.00
Add: Packing charges (5 non-returnable boxes) 50.00
850.00
No. of units purchased 200 units
Cost per unit 4.25
Note: (i) Cash discount is treated as interest and finance charges hence, it is not
considered for valuation of material.
(ii) Input credit is available for IGST paid; hence it will not be added to purchase cost.
might arise from purchase of bad quality of materials. Apart from preservation of
quality, the store-keeper also ensures safe custody of the material. It should be
the function of store-keeper that the right quantity of materials always should be
available in stock.
2.5.1 Duties of store keeper
These can be briefly set out as follows:
(i) General control over store: Store keeper should keep control over all
activities in Stores department. He should check the quantities as mentioned in
Goods received note and with the purchased materials forwarded by the receiving
department and to arrange for the storage in appropriate places.
(ii) Safe custody of materials: Store keeper should ensure that all the
materials are stored in a safe condition and environment required to preserve the
quality of the materials.
(iii) Maintaining records: Store keeper should maintain proper record of
quantity received, issued, balance in hand and transferred to/ from other stores.
(iv) Initiate purchase requisition: Store keeper should initiate purchase
requisitions for the replacement of stock of all regular stores items whenever the
stock level of any item of store approaches the re-order level fixed.
(v) Maintaining adequate level of stock: Store keeper should maintain
adequate level of stock at all time. He/ she should take all necessary action so
that production could not be interrupted due to lack of stock. Further he/ she
should take immediate action for stoppage of further purchasing when the stock
level approaches the maximum limit. To reserve a particular material for a specific
job when so required.
(vi) Issue of materials: Store keeper should issue materials only against the
material requisition slip approved by the appropriate authority. He/ she should
also refer to bill of materials while issuing materials to requisitioning department.
(vii) Stock verification and reconciliation: Store keeper should verify the book
balances with the actual physical stock at frequent intervals by way of internal
control and check the any irregular or abnormal issues, pilferage, etc.
2.5.2 Store Records
The record of stores may be maintained in three forms:
Bin Cards
Inventory Control
(i) Re-order Stock Level (ROL): This level lies between minimum and the
maximum levels in such a way that before the material ordered is received into
the stores, there is sufficient quantity on hand to cover both normal and
abnormal consumption situations. In other words, it is the level at which fresh
order should be placed for replenishment of stock.
It is calculated as:
Ordering Cost: The costs which are associated with the purchase or order of
materials. It includes cost to invite quotations, documentation works like
preparation of purchase orders, employee cost directly attributable to the
procurement of material, transportation and inspection cost etc.
Carrying Cost: The costs for holding/ carrying of inventories in store. It includes
the cost of fund invested in inventories, cost of storage, insurance cost,
obsolescence etc.
The Economic Order Quantity (EOQ) is calculated as below:
Annual Requirement (A)- It represents demand for Raw material or Input for a year.
Cost per Order (O) - It represents cost of placing an order for purchase.
Carrying Cost (C) – It represents cost of carrying average inventory on annual basis.
Assumptions underlying E.O.Q.: The calculation of economic order of material
to be purchased is subject to the following assumptions:
(i) Ordering cost per order and carrying cost per unit per annum are known
and they are fixed.
(ii) Anticipated usage of material in units is known.
(iii) Cost per unit of the material is constant and is known as well.
(iv) The quantity of material ordered is received immediately i.e. the lead time is
zero.
ILLUSTRATION 3
CALCULATE the Economic Order Quantity from the following information. Also
state the number of orders to be placed in a year.
Consumption of materials per annum : 10,000 kg.
Order placing cost per order : ` 50
Cost per kg. of raw materials : `2
Storage costs : 8% on average inventory
SOLUTION
2× A ×O
EOQ =
C
A = Units consumed during year
O = Ordering cost per order
C = Inventory carrying cost per unit per annum.
2 ×10,000 × 50 = 2 × 10,000 × 50 × 25
EOQ = = 2,500 kg.
2×8 4
100
Total consumption of materials per annum
No. of orders to be placed in a year =
EOQ
ILLUSTRATION 4
(i) COMPUTE E.O.Q. and the total variable cost for the following:
Annual Demand = 5,000 units
Unit price = ` 20.00
Order cost = ` 16.00
Storage rate = 2% per annum
Interest rate = 12% per annum
Obsolescence rate = 6% per annum
(ii) DETERMINE the total cost that would result for the items if an incorrect price
of ` 12.80 is used.
SOLUTION
(i) Carrying cost (C) = Storage rate = 2%
Interest Rate = 12%
Obsolescence Rate = 6%
Total = 20% per annum
C= 20% of ` 20 = ` 4 per unit per annum.
2AO 2×5000×16
E.O.Q = = = 40,000 = 200 units
C 4
Total cost:
Purchase price of 5,000 units @ ` 20.00 per unit = ` 1,00,000
5000
Ordering cost = =25 orders @ ` 16 = ` 400
200
200
Carrying cost of average Inventory = =100 units @ ` 4 = ` 400
2
Total cost ` 1,00,800
(ii) If an incorrect price of ` 12.80 is used:
C = 20% of 12.80 = ` 2.56 per unit per annum.
2×5,000×16
E.O.Q. = = 250 units
2.56
Total cost:
Purchase price of 5,000 units @ ` 12.80 per unit = ` 64,000
5,000
Ordering cost = = 20 orders @ ` 16 = ` 320
250
250
Carrying cost (of average inventory) = =125 units @ ` 2.56= ` 320
2
Total variable cost ` 64,640
(iii) Minimum Stock Level: It is lowest level of material stock, which must be
maintained in hand at all times, so that there is no stoppage of production due to
non-availability of inventory.
It is calculated as below:
(iv) Maximum Stock Level: It is the highest level of quantity for any material
which can be held in stock at any time. Any quantity beyond this level cause extra
amount of expenditure due to engagement of fund, cost of storage, obsolescence
etc.
It can be calculated as below:
(vi) Danger level: It is the level at which normal issues of the raw material
inventory are stopped and emergency issues are only made.
It can be calculated as below:
All the above stock levels can be understood with the help of the following
diagram:
Stock Control Chart
Quantity
ILLUSTRATION 5
Two components, A and B are used as follows:
Normal usage 50 per week each
Maximum usage 75 per week each
Minimum usage 25 per week each
Re-order quantity A: 300; B: 500
Re-order period A: 4 to 6 weeks
B: 2 to 4 weeks
CALCULATE for each component (a) Re-ordering level, (b) Minimum level, (c)
Maximum level, (d) Average stock level.
SOLUTION
(a) Re-ordering level:
Maximum usage per week × Maximum delivery period.
Re-ordering level for component A = 75 units × 6 weeks = 450 units
2×5,000 units×` 20
2. Re-order Quantity (ROQ) = = 200 units
5
2.6.2 Inventory Stock- Out
Stock out said to be occurred when an inventory item could not be supplied
due to insufficient stock in the store. The stock- out situation costs to the entity
not only in financial terms but in non-financial terms also. Due to stock out an
entity not only loses overheads costs and profit but reputation (goodwill) also
due to non-fulfilment of commitment. Though it may not be a monetary loss in
short term but in long term it could be a reason for financial loss.
While deciding on the level of inventory, a trade-off between the stock out cost
and carrying cost is made so that overall inventory cost can be minimized.
ILLUSTRATION 7:
M/s Tyrotubes trades in four wheeler tyres and tubes. It stocks sufficient quantity of
tyres of almost every vehicle. In year end 20X8-X9, the report of sales manager
revealed that M/s Tyrotubes experienced stock-out of tyres.
The stock-out data is as follows:
M/s Tyrotubes loses ` 150 per unit due to stock-out and spends ` 50 per unit on
carrying of inventory.
DETERMINE optimum safest stock level.
SOLUTION
Computation of Stock-out and Inventory carrying cost
Safety Stock- Probability Stock- Expected Inventory Total
Stock out (3) out cost stock-out carrying cost cost (`)
Level (units) (`) cost (`) (`) (7) =
(units) (2) (4) = (2) (5)=(3)x(4) (6) =(1)x`50 (5)+(6)
(1) x `150
100 0 0.00 0 0 5,000 5,000
80 20 0.02 3,000 60 4,000 4,060
50 50 0.02 7,500 150
30 0.05 4,500 225
12,000 375 2,500 2,875
20 80 0.02 12,000 240
60 0.05 9,000 450
30 0.10 4,500 450
25,500 1,140 1,000 2,140
10 90 0.02 13,500 270
70 0.05 10,500 525
40 0.10 6,000 600
10 0.20 1,500 300
31,500 1,695 500 2,195
0 100 0.02 15,000 300 2,700
80 0.05 12,000 600
50 0.10 7,500 750
20 0.20 3,000 600
10 0.30 1,500 450
39,000 2,700 0 2,700
Explanation:
Stock-out means the demand of an item that could not be fulfilled because of
insufficient stock level.
Safety stock is the level of stock of any item which is maintained in excess of
lead time consumption. It is kept as cushion against any unexpected demand
for that item.
Vital, Essential and Desirable (VED) •On the basis of importance of inventory
High, Medium and Low (HML) •On the basis of price of an item of inventory
(1) ABC Analysis: This system exercises discriminating control over different
items of inventory on the basis of the investment involved. Usually the items are
classified into three categories according to their relative importance, namely,
their value and frequency of replenishment during a period.
(i) ‘A’ Category: This category of items consists of only a small percentage i.e.,
about 10% of the total items handled by the stores but require heavy investment
about 70% of inventory value, because of their high prices or heavy requirement
or both. Items under this category can be controlled effectively by using a regular
system which ensures neither over-stocking nor shortage of materials for
production. Such a system plans its total material requirements by making
budgets. The stocks of materials are controlled by fixing certain levels like
maximum level, minimum level and re-order level.
(ii) ‘B’ Category: This category of items is relatively less important; they may be
20% of the total items of material handled by stores. The percentage of investment
required is about 20% of the total investment in inventories. In the case these
items, as the sum involved is moderate, the same degree of control as applied in
‘A’ category of items is not warranted. The orders for the items, belonging to this
category may be placed after reviewing their situation periodically.
(iii) ‘C’ Category: This category of items does not require much investment; it
may be about 10% of total inventory value but they are nearly 70% of the total
items handled by store. For these category of items, there is no need of exercising
constant control. Orders for items in this group may be placed either after six
months or once in a year, after ascertaining consumption requirements. In this
case the objective is to economies on ordering and handling costs.
Cost
ILLUSTRATION 8
From the following details, DRAW a plan of ABC selective control:
SOLUTION
Statement of Total Cost and Ranking
Item Units % of Total Unit cost Total % of Total Ranking
units (`) cost (`) cost
1 7,000 3.1963 5.00 35,000 9.8378 4
2 24,000 10.9589 3.00 72,000 20.2378 2
3 1,500 0.6849 10.00 15,000 4.2162 7
4 600 0.2740 22.00 13,200 3.7103 8
5 38,000 17.3516 1.50 57,000 16.0216 3
6 40,000 18.2648 0.50 20,000 5.6216 6
7 60,000 27.3973 0.20 12,000 3.3730 9
8 3,000 1.3699 3.50 10,500 2.9513 11
9 300 0.1370 8.00 2,400 0.6746 12
10 29,000 13.2420 0.40 11,600 3.2605 10
(ii) Lower cost: The cost of placing orders, receiving goods and main-
taining stocks is minimised specially if the system is coupled with the
determination of proper economic order quantities.
(iii) Less attention required: Management time is saved since attention
need be paid only to some of the items rather than all the items as
would be the case if the ABC system was not in operation.
(iv) Systematic working: With the introduction of the ABC system, much of
the work connected with purchases can be systematized on a routine
basis to be handled by subordinate staff.
ILLUSTRATION 9
A factory uses 4,000 varieties of inventory. In terms of inventory holding and
inventory usage, the following information is compiled:
(i) Vital- Items are classified as vital when its unavailability can interrupt the
production process and cause a production loss. Items under this category are
strictly controlled by setting re-order level.
(ii) Essential- Items under this category are essential but not vital. The
unavailability may cause sub standardisation and loss of efficiency in production
process. Items under this category are reviewed periodically and gets the second
priority.
(iii) Desirable- Items under this category are optional in nature, unavailability
does not cause any production or efficiency loss.
(4) High Cost, Medium Cost, Low Cost (HML) Inventory: Under this system,
inventory is classified on the basis of the cost of an individual item, unlike ABC
analysis where inventories are classified on the basis of overall value of inventory.
A range of cost is used to classify the inventory items into the three categories.
High Cost inventories are given more priority for control, whereas Medium cost
and Low cost items are comparatively given lesser priority.
2.6.5 Using Ratio Analysis
(i) Input Output Ratio: Inventory control can also be exercised by the use of
input output ratio analysis. Input-output ratio is the ratio of the quantity of
input of material to production and the standard material content of the
actual output.
This type of ratio analysis enables comparison of actual consumption and
standard consumption, thus indicating whether the usage of material is
favourable or adverse.
(ii) Inventory Turnover Ratio: Computation of inventory turnover ratios for
different items of material and comparison of the turnover rates provides a useful
guidance for measuring inventory performance. High inventory turnover ratio
indicates that the material in the question is a fast moving one. A low turnover
ratio indicates over-investment and locking up of the working capital in inventories.
Inventory turnover ratio may be calculated by using the following formulae: -
360days /12months
Average no. of days of Inventory holding =
Inventory TurnoverRatio
By comparing the number of days in the case of two different materials, it is
possible to know which is fast moving and which is slow moving. On this basis,
attempt should be made to reduce the amount of capital locked up, and prevent
over-stocking of the slow moving items.
ILLUSTRATION 10
The following data are available in respect of material X for the year ended 31st
March, 20X9.
(`)
Opening stock 90,000
Purchases during the year 2,70,000
Closing stock 1,10,000
CALCULATE:
(i) Inventory turnover ratio, and
(ii) The number of days for which the average inventory is held.
SOLUTION
Inventory turnover ratio
Cost of stock of raw material consumed
(Refer to working note) =
Average stock of raw material
`2,50,000
= = 2.5
`1,00,000
Average number of days for which the average inventory is held
365 365 days
= =
Inventory turnover ratio 2.5
= 146 days
Working Note:
(`)
Opening stock of raw material 90,000
SOLUTION
First of all it is necessary to find out the material consumed:
out of the larger part; but as soon as it becomes necessary to use quantity out of
the smaller part of the bin, fresh order is placed. “Two Bin System” is
supplemental to the record of respective quantities on the bin card and the stores
ledger card.
(ii) Establishment of system of budgets: To control investment in the
inventories, it is necessary to know in advance about the inventories requirement
during a specific period usually a year. The exact quantity of various types of
inventories and the time when they would be required can be known by studying
carefully production plans and production schedules. Based on this, inventories
requirement budget can be prepared. Such a budget will discourage the
unnecessary investment in inventories.
(iii) Perpetual inventory records and continuous stock verification:
Perpetual inventory represents a system of records maintained by the stores
department. It in fact comprises: (i) Bin Cards, and (ii) Stores Ledger.
The success of perpetual inventory depends upon the following:
(a) The Stores Ledger−(showing quantities and amount of each item).
(b) Stock Control cards (or Bin Cards).
(c) Reconciling the quantity balances shown by (a) & (b) above.
(d) Checking the physical balances of a number of items every day
systematically and by rotation.
(e) Explaining promptly the causes of discrepancies, if any, between physical
balances and book figures.
(f) Making corrective entries where called for after step (e) and
(g) Removing the causes of the discrepancies referred to in step (e)
Advantages of perpetual inventory: The main advantages of perpetual
inventory are as follows:
(1) Physical stocks can be counted and book balances adjusted as and when
desired without waiting for the entire stock-taking to be done.
(2) Quick compilation of Profit and Loss Account (for interim period) due to
prompt availability of stock figures.
(3) Discrepancies are easily located and thus corrective action can be promptly
taken to avoid their recurrence.
materials from the store. Issue of material must be made on the basis of first in
first out, that is, out of the earliest lot on hand. If care is not exercised in this
regard, quality of earliest lot of material may deteriorate for having been kept for
a long period.
(i) Issue against Material Requisition Note: It is the voucher of the
authority as regards issue of materials for use in the factory or in any of its
departments. After receipt of material requisition slip, store keeper ensures that
requisition is properly authorized and requisitioned quantity is within the quantity
specified in bill of materials. After satisfied with the documents, store keeper issue
materials and keep one copy of based materials and record the transaction in the
records maintained by the stores department.
(ii) Transfer of Material: The surplus material arising on a job or other units
of production may sometime be unsuitable for transfer to store because of its
bulk, heavy weight, brittleness or some such reason. It may, however, be possible
to find some alternative use for such materials by transferring it to some other
job instead of returning it to the store.
It must be stressed that generally transfer of material from one job to another is
irregular, if not improper, in so far it is not conducive to correct allocation and
control of material cost of jobs or other units of production. It is only in the
circumstances envisaged above that such direct transfer should be made, at the
time of material transfer a material transfer note should be made in duplicate, the
disposition of the copies of this note being are as follows:
Material Transfer
No copy is required for the Store as no entry in the stores records would be called
for. The Cost Accounting Department would use its copy for the purpose of
making the necessary entries in the cost ledger accounts for the jobs affected.
Format of a material requisition note may vary on the basis of industrial
peculiarities, management information system (MIS) and accounting system in
place.
(iii) Return of Material: Sometimes, it is not possible before hand to make any
precise estimate of the material requirements or units of production. Besides, at
times due to some technical or other difficulty, it is not practicable to measure
exactly the quantity of material required by a department. In either case, material
may have to be issued from stores in bulk, often in excess of the actual quantity
required. Where such a condition exists, it is of the utmost importance from the
point of view of materials control that any surplus material left over on the
completion of a job should be promptly hand over to the storekeeper for
safe and proper custody.
Unless this is done, the surplus material may be misappropriated or misapplied to
some purpose, other than that for which it was intended. The material cost of the
job against which the excess material was originally drawn in that case, would be
overstated unless the job is given credit for the surplus arising thereon.
The surplus material, when it is returned to the storeroom, should be
accompanied by a document known either as a Shop Credit Note or
alternatively as a Stores Debit Note. This document should be made out, by the
department returning the surplus material and it should be in triplicate to be used
as follows:
Store Room
Department Returnign it
Format of a shop credit note may vary on the basis of industrial peculiarities,
management information system (MIS) and accounting system in place.
Advantages Disadvantages
• The cost of materials issued for • This method is difficult to operate,
production purposes to specific jobs specially when purchases and
represent actual and correct costs. issues are numerous.
• This method is best suited for non-
standard and specific products.
The stock in hand after 8th August will be 1,000 Kgs. This will be out of lot
number (5) and its value will be ` 800, i.e., @ ` 0.80 per Kg.
(iii) Last-in-First-out (LIFO) method: It is a method of pricing the issues of
materials. This method is based on the assumption that the items of the last
batch (lot) purchased are the first to be issued. Therefore, under this method
the prices of the last batch (lot) are used for pricing the issues, until it is
exhausted, and so on. If however, the quantity of issue is more than the quantity
of the latest lot than earlier (lot) and its price will also be taken into consideration.
During inflationary period or period of rising prices, the use of LIFO would
help to ensure that the cost of production determined on the above basis is
approximately the current one. This method is also useful specially when there is
a feeling that due to the use of FIFO or average methods, the profits shown and
tax paid are too high.
Advantages and Disadvantages
Advantages Disadvantages
• The cost of materials issued will be • Calculation under LIFO system
either nearer to and or will reflect the becomes complicated and
current market price. Thus, the cost cumbersome when frequent
of goods produced will be related to purchases are made at highly
the trend of the market price of fluctuating rates.
materials. Such a trend in price of
materials enables the matching of cost
of production with current sales
revenues.
• The use of the method during the period • Costs of different similar batches
of rising prices does not reflect undue of production carried on at the
high profit in the income statement as it same time may differ a great
was under the first-in-first-out or deal.
average method. In fact, the profit
shown here is relatively lower because
the cost of production takes into
account the rising trend of material
prices.
• In the case of falling prices profit • In time of falling prices, there
tends to rise due to lower material will be need for writing off stock
cost, yet the finished products appear value considerably to stick to
It may be noted that Last in First out (LIFO) is not permitted under Accounting
Standard (AS)-2: Valuation of Inventories and Ind AS- 2: Inventories. However,
for the purpose of academic knowledge LIFO method is included in this Study
Material
ILLUSTRATION 12
The following transactions in respect of material Y occurred during the six months
ended 30th June, 20X8:
SOLUTION
(a) The Closing Stock at the end of six months’ period i.e., on 30th June, 20X8
will be 200 units, whereas up to the end of May 20X8, total purchases coincide
with the total issues i.e., 1,900 units. It means that at the end of May 20X8, there
was no closing stock. In the month of June 20X8, 600 units were purchased out of
which 400 units were issued. Since there was only one purchase and one issue in
the month of June, 20X8 and there was no opening stock on 1st June 20X8, the
Closing Stock of 200 units is to be valued at ` 20 per unit.
In view of this, the argument of the Chief Accountant appears to be correct.
Where there is only one purchase and one issue in a month with no opening
stock, the method of pricing of material issues becomes irrelevant. Therefore, in
the given case one should agree with the argument of the Chief Accountant that
the value of Closing Stock remains the same no matter which method of pricing
the issue is used.
It may, however, be noted that the argument of Chief Accountant would not
stand if one finds the value of the Closing Stock at the end of each month.
(b) LIFO method has an edge over FIFO or any other method of pricing material
issues due to the following advantages:
(i) The cost of the materials issued will be either nearer or will reflect the
current market price. Thus, the cost of goods produced will be related to the
trend of the market price of materials. Such a trend in price of materials
enables the matching of cost of production with current sales revenues.
(ii) The use of the method during the period of rising prices does not reflect
undue high profit in the income statement, as it was under the first-in-first-
out or average method. In fact, the profit shown here is relatively lower
because the cost of production takes into account the rising trend of
material prices.
(iii) In the case of falling prices, profit tends to rise due to lower material cost,
yet the finished products appear to be more competitive and are at market
price.
(iv) During the period of inflation, LIFO will tend to show the correct profit and
thus, avoid paying undue taxes to some extent.
ILLUSTRATION 13
The following information is provided by Sunrise Industries for the fortnight of April,
20X9:
Material Exe:
Stock on 1-4-20X9 100 units at ` 5 per unit.
Purchases
5-4-20X9, 300 units at ` 6
8-4-20X9, 500 units at ` 7
12-4-20X9, 600 units at ` 8
Issues
6-4-20X9, 250 units
10-4-20X9,400 units
14-4-20X9,500 units
Required:
(A) CALCULATE using FIFO and LIFO methods of pricing issues:
(a) the value of materials consumed during the period
(b) the value of stock of materials on 15-4-20X9.
(B) EXPLAIN why the figures in (a) and (b) in part A of this question are different
under the two methods of pricing of material issues used. You need not draw
up the Stores Ledgers.
SOLUTION
(A) (a) Value of Material Exe consumed during the period
1-4-20X9 to 15-4-20X9 by using FIFO method.
Total value of material Exe consumed during the period under FIFO
method comes to (` 1,400 + ` 2,650 + ` 3,750) ` 7,800 and balance on
15-4-20X9 is of ` 2,800.
Value of material Exe consumed during the period 01-4-20X9 to
15-4-20X9 by using LIFO method
(B) Total value of material Exe issued to production under FIFO and LIFO
methods comes to ` 7,800 and ` 8,300 respectively. The value of closing
stock of material Exe on 15-4-20X9 under FIFO and LIFO methods comes to
` 2,800 and ` 2,300 respectively.
The reasons for the difference of ` 500 (` 8,300 – ` 7,800) as shown by the
following table in the value of material Exe, issued to production under FIFO
and LIFO are as follows:
Date Quantity Value Total Value Total
Issued FIFO LIFO
(Units) (`) (`) (`) (`)
6 - 4-20X9 250 1,400 1,500
10-4-20X9 400 2,650 2,800
14-4-20X9 500 3,750 7,800 4,000 8,300
1. On 6-4-20X9, 250 units were issued to production. Under FIFO their
value comes to ` 1,400 (100 units × ` 5 + 150 units × ` 6) and under
LIFO ` 1,500 (250 × ` 6). Hence, ` 100 was more charged to
production under LIFO.
2. On 10-4-20X9, 400 units were issued to production. Under FIFO their
value comes to ` 2,650 (150 × ` 6 + 250 × ` 7) and under LIFO ` 2,800
(400 × ` 7). Hence, ` 150 was more charged to production under
LIFO.
3. On 14-4-20X9, 500 units were issued to production. Under FIFO their
value comes to ` 3,750 (250 × ` 7 + 250 × ` 8) and under LIFO ` 4,000
(500 × ` 8). Hence, ` 250 was more charged to production under
LIFO.
Thus the total excess amount charged to production under LIFO comes to
` 500.
The reasons for the difference of ` 500 (` 2,800 – ` 2,300) in the value of
350 units of Closing Stock of material Exe under FIFO and LIFO are as
follows:
1. In the case of FIFO, all the 350 units of the closing stock belongs to
the purchase of material made on 12-4-20X9, whereas under LIFO
these units were from opening balance and purchases made on 5-4-
20X9, 8-4-20X9 and 12-4-20X9.
This method is suitable when the materials are received in uniform lots of similar
quantity, and prices do not fluctuate considerably.
Advantages and Disadvantages:
Advantages Disadvantages
• This method is simple to use for • This method does not provide right
an entity which orders materials in stock valuation when standard
a lot of standard quantity, as only quantity for purchase in a lot is not
price per lot is taken to calculate specified.
average price
• In a stable price environment, this • When price of materials fluctuates and
method gives a price which the entity choses to customise the
approximates to the current order quantity, in this situation price
market price. under this method may differs
substantially from current market
price.
(ii) Weighted Average Price Method: Unlike Simple Average Price method,
this method gives due weightage to quantities also. Under this method, issue
price is calculated dividing sum of products of price and quantity by total number
quantities.
Example: During the month of April, a company has made five purchases as
follows:
1st April, 200 units @ `10 each;
5th April, 150 units @ `12 each;
14th April, 210 units @ `12 each;
21st April, 50 units @ `15 each and
28th April, 140 units @ `11 each.
The issue price under Weightage Average Price Method would be calculated as
below:
{(` 10×200 units)+(` 12×150 units)+(` 12×210 units)+(` 15×50 units)+(` 11×140 units)}
(200+150+210+50+140) units
` 8,610
= ` 11.48 each
750 units
This method is useful in case when quantity purchased under each lot is different
and price fluctuates frequently.
Advantages and Disadvantages:
Advantages Disadvantages
• It smoothens the price • Material cost does not represent
fluctuations if at all it is there due actual cost price and therefore, a
to material purchases. profit or loss will arise out of such a
pricing method.
• Issue prices need not be • It may be difficult to compute since
calculated for each issue unless every time lot received would require
new lot of materials is received. re-computation of issue prices.
following factors:
(i) Current prices,
(ii) Anticipated market trends, and
(iii) Discount available and transport charges etc.
Standard prices are fixed for each material and the requisitions are priced at the
standard price. This method is useful for controlling material cost and
determining the efficiency of purchase department. In the case of highly
fluctuating prices of materials, it is difficult to fix their standard cost on long-term
basis.
Advantages Disadvantages
• The use of the standard price • The use of standard price does not
method simplifies the task of reflect the market price and thus
valuing issues of materials. results in a profit or loss.
• It facilitates the control of • The fixation of standard price
material cost and the task of becomes difficult when prices
judging the efficiency of fluctuate frequently
purchase department.
• It reduces the clerical work.
(ii) Inflated Price Method: In case material suffers loss in weight due to
natural or climatic factors, e.g., evaporation, the issue price of the material is
inflated to cover up the losses.
(iii) Re-use Price Method: When materials are rejected and returned to the
stores or a processed material is put to some other use, then for the purpose it is
meant, then such materials are priced at a rate quite different from the price paid
for them originally. There is no final procedure for valuing use of material.
The price of the materials to be returned to vendor should include its invoice
price plus freight, receiving and handling charges etc. Strictly speaking, the
materials returned to vendor should be returned at the stores ledger price and not
at invoice price. But in practice invoice price is only considered, the gap between
the invoice price and stores ledger price is charged as overhead. In Stores ledger
the defective or sub-standard materials are shown in the issue column at the rate
shown in the ledger, and the difference between issue price and invoice cost is
debited to an inventory adjustment account.
2.9.2 Valuation of Materials Returned to Stores
When materials requisitioned for a specific job or work-in progress are found to
be in excess of the requirement or are unsuitable for the purpose, they are
returned to the stores. There are two ways of treating such returns.
(1) Such returns are entered in the receipt column at the price at which they
were originally issued, and the materials are kept in suspense, to be issued
at the same price against the next requisition.
(2) Include the materials in stock as if they were fresh purchases at the original
issue price.
2.9.3 Valuation of Shortages during Physical Verification
Materials found short during physical verification should be entered in the issue
column and valued at the rate as per the method adopted, i.e., FIFO or any other.
Loss of Material
(i) Waste: The portion of raw material which is lost during storage or
production and discarded. The waste may or may not have any value.
Treatment of Waste
Normal- Cost of normal waste is absorbed by good production units.
Abnormal- The cost of abnormal loss is transferred to Costing Profit and loss
account.
(ii) Scrap: The materials which are discarded and disposed-off without further
treatment. Generally, scrap has either no value of insignificant value. Some time it
may reintroduced into the process as raw material.
Treatment of Scrap
Normal- The cost of scrap is borne by good units and income arises on account
realisable value is deducted from the cost.
Abnormal- The scrap account should be charged with full cost. The credit is
given to the job or process concerned. The profit or loss in the scrap account, on
realisation, will be transferred to the Costing Profit and Loss Account.
(iii) Spoilage: It is the term used for materials which are badly damaged in
manufacturing operations, and they cannot be rectified economically and hence
taken out of process to be disposed of in some manner without further
processing.
Treatment of Spoilage
Normal- Normal spoilage (i.e., which is inherent in the operation) costs are
included in costs either charging the loss due to spoilage to the production order
or by charging it to production overhead so that it is spread over all products.
Any value realised from spoilage is credited to production order or production
overhead account, as the case may be.
Abnormal- The cost of abnormal spoilage (i.e., arising out of causes not inherent
in manufacturing process) is charged to the Costing Profit and Loss Account.
When spoiled work is the result of rigid specification, the cost of spoiled work is
absorbed by good production while the cost of disposal is charged to production
overhead.
(iv) Defectives: It signifies those units or portions of production which do not
meet the quality standards. Defectives arise due to sub-standard materials, bad-
supervision, bad-planning, poor workmanship, inadequate-equipment and
careless inspection.
Defectives which can be re-made as per the quality standard by using additional
materials are known as reworks. Reworks includes repairs, reconditioning and
refurbishing.
Defectives which cannot be brought up to the quality standards are known as
rejects. The rejects may either be disposed- off or re-cycled for production
process.
Treatment of Defectives:
Normal- The cost less realisable value on sale of defectives are charged to
material cost of good production.
Abnormal- Material Cost of abnormal defectives are not included in material cost
but treated as loss after giving credit to the realisable value of such defectives.
The material cost of abnormal loss is transferred to costing profit and loss
account.
Reclamation of loss from defective units
In the case of articles that have been spoiled, it is necessary to take steps to
reclaim as much of the loss as possible. For this purpose:
(i) All defective units should be sent to a place fixed for the purpose;
(ii) These should be dismantled;
(iii) Goods and serviceable parts should be separated and taken into stock;
(iv) Parts which can be made serviceable by further work should be separated
and sent to the workshop for the purpose and taken into stock after the
defects have been removed; and
(v) Parts which cannot be made serviceable should be collected in one place for
being melted or sold.
Printed forms should be used to record quantities for all purposes
aforementioned.
Difference between Waste and Scrap
Waste Scrap
1. It is connected with raw material 1. It is connected with output
or inputs to the production
process.
2. Waste of materials may be visible 2. Scraps are generally identifiable
Scrap Defectives
1. It is loss connected with output 1. This type of loss connected with the
output but it can be in the input as
well.
2. Scraps are not intended but 2. Defectives also are not intended but
cannot be eliminated due to can be eliminated through proper
nature of material or process control.
itself.
3. Generally scraps are not used or 3. Defectives can be used after
rectified. rectification.
4. Scraps have insignificant 4. Defectives are sold at lower value
recoverable value. from that of good one.
In all three cases, the value of the obsolete material held in stock is a total loss
and immediate steps should be taken to dispose it off at the best available price.
The loss arising out of obsolete materials on abnormal loss does not form part of
the cost of manufacture.
3. Each issue of materials should be recorded. One way of doing this is to use
a material requisition note. This note shows the details of materials issued
for product of cost centre and the cost centre which is to be charged with
cost of materials.
4. A material return note is required for recording the excess materials
returned to the store. This note is required to ensure that original product
of cost centre is credited with the cost of material which was not used and
that the stock records are updated.
5. A material transfer note is required for recording the transfer of materials
from one product of cost centre to other or from one cost centre to other
cost centre.
6. The cost of materials issued would be determined according to stock
valuation method used.
2.11.2 Monitoring Consumption of Materials
For monitoring consumption of materials, a storekeeper should periodically
analyse the various material requisitions, material return notes and material
transfer notes. Based on this analysis, a material abstracts or material issue
analysis sheet is prepared, which shows at a glance the value of material
consumed in manufacturing each product. This statement is also useful for
ascertaining the cost of material issued for each product.
Format of Material Abstract
Week Ending............
Material Amount Product Nos. Total Overheads
requisition (`) for (Indirect
or Transfer Product Material
Note or charged)
Returned
101 102 103 104 105 106
Note No.
(`) (`) (`) (`) (`) (`) (`)
— — — — — — — — —
Total
The material abstract statement serves a useful purpose. It in fact shows the
amount of material to be debited to various products & overheads. The total
amount of stores debited to various products & overheads should be the same as
the total value of stores issued in any period.
2.11.3. Basis for consumption entries in Financial Accounts
Every manufacturing organisation assigns material costs to products for two
purposes.
Firstly, for external financial accounting requirements, in order to allocate the
material costs incurred during the period between cost of goods produced and
inventories; secondly to provide useful information for managerial decision
making requirements. In order to meet external financial accounting
requirements, it may not be necessary to accurately trace material costs to
individual products.
Some products costs may be overstated and others may be understated but this
may not matter for financial accounting purposes as long as total of individual
materials costs transactions are recorded i.e., transactions between cost centre
within the firm are recorded in a manner that facilitates analysis of costs for
assigning them to cost units.
The consumption entries in financial accounts are made on the basis of total cost
of purchases of materials after adjustment for opening and closing stock of
materials. The stock of materials is taken at cost or net realisable value whichever
is less.
SUMMARY
♦ Material Control: It is the systematic control over the procurement,
storage and usage of materials to maintain even flow of materials and
avoiding at the same time excessive investment in inventories.
♦ Material Requisition Note: Document used to authorize and record the
issue of materials from store.
♦ Purchase Requisition Note: Document is prepared by the storekeeper to
initiate the process of purchases.
♦ Purchase Order: It is a written request to the supplier to supply certain
specified materials at specified rates and within a specified period.
♦ Goods Received Note: This document is prepared by receiving department
which unpacks the goods received and verify the quantities and other
details.
♦ Material Transfer Note: This document is prepared when the material is
transferred from one department to another.
♦ Material Return Note: It is a document given with the goods being
returned from Factory back to the stores.
♦ Bin Card: A prime entry record of the quantity of stocks, kept on
in/out/balance, held in designated storage areas.
♦ Stores Ledger: A ledger containing a separate account for each item of
material and component stocked in store giving details of the receipts,
issues and balance both in terms of quantity and value.
♦ Minimum Level: It is the minimum quantity, which must be retained in
stock
ROL- (Avg. consumption × Avg. Lead time)
♦ Maximum Level: It is the maximum limit upon which stock can be stored at
any time
ROL + ROQ – (Min consumption × Min Lead Time)
♦ Re order Level: It is the level, when reached the order needs to be placed
Maximum lead time × Maximum Usage
Or
Minimum level + (Average rate of consumption × Average time to obtain
fresh supplies).
♦ Average Inventory Level = Minimum level + 1/2 Re-order quantity
Or
♦ Defectives: Goods which can be rectified and turned out as good units by
the application of additional labour or other services.
(c) FIFO
(d) LIFO
9. Under the FSN system of inventory control, inventory is classified on the
basis of:
(a) Volume of material consumption
(d) Frequency of usage of items of inventory
(c) Criticality of the item of inventory for production
(d) Value of items of inventory
10. Materials are issued to from one process to another, on the basis of:
(a) Material Transfer Note
(b) Material Requisition Note
(c) Bill of Materials
(d) Purchase Requisition Note
Theoretical Questions
1. STATE how normal and abnormal loss of material arising during storage are
treated in Cost Accounts?
2. DISTINGUISH clearly between Bin cards and Stores Ledger.
3. DISCUSS the accounting treatment of defectives in Cost Accounts.
4. EXPLAIN the concept of "ABC Analysis" as a technique of inventory control.
5. DISTINGUISH between Re-order level and Re-order quantity.
6. EXPLAIN how is slow moving and non-moving item of stores detected and
what steps are necessary to reduce such stocks?
7. Write short notes on any three of the following:
(i) Re-order quantity
(ii) Re-order level
(iii) Maximum stock level
(iv) Minimum stock level
Practical Problems
1. Anil & Company buys its annual requirement of 36,000 units in 6
instalments. Each unit costs ` 1 and the ordering cost is ` 25. The inventory
carrying cost is estimated at 20% of unit value. FIND the total annual cost
of the existing inventory policy. CALCULATE ,How much money can be
saved by Economic Order Quantity?
2. A Company manufactures a special product which requires a component
‘Alpha’. The following particulars are collected for the year 20X1:
(i) Annual demand of Alpha 8,000 units
(ii) Cost of placing an order ` 200 per order
(iii) Cost per unit of Alpha ` 400
(iv) Carrying cost p.a. 20%
The company has been offered a quantity discount of 4 % on the purchase
of ‘Alpha’ provided the order size is 4,000 components at a time.
Required:
(i) COMPUTE the economic order quantity
(ii) STATE whether the quantity discount offer can be accepted.
3. The complete Gardener is deciding on the economic order quantity for two
brands of lawn fertilizer. Super Grow and Nature’s Own. The following
information is collected:
FERTILIZER
Super Grow Nature’s Own
Annual demand 2,000 bags 1,280 bags
Relevant ordering cost per purchase ` 1,200 ` 1,400
order
Annual relevant carrying cost per bag ` 480 ` 560
Required:
(i) COMPUTE EOQ for Super Grow and Nature’s own.
(ii) For the EOQ, WHAT is the sum of the total annual relevant ordering
costs and total annual relevant carrying costs for Super Grow and
Nature’s own?
(iii) For the EOQ, COMPUTE the number of deliveries per year for Super
Grow and Nature’s own.
4. A Company uses three raw materials A, B and C for a particular product for
which the following data apply:
Raw Usage per Re-order Price Delivery period Re- Minimu
Material unit of quantity per (in weeks) order m level
Product (Kgs.) Kg. level (Kgs.)
(Kgs.) (Kgs)
Minimum Average Maximum
A 10 10,000 10 1 2 3 8,000 ?
B 4 5,000 30 3 4 5 4,750 ?
C 6 10,000 15 2 3 4 ? 2,000
Weekly production varies from 175 to 225 units, averaging 200 units of the
said product. COMPUTE the following quantities:
(i) Minimum stock of A,
(ii) Maximum stock of B,
(iii) Re-order level of C,
(iv) Average stock level of A.
5. (a) EXE Limited has received an offer of quantity discounts on its order of
materials as under:
values allocated to Job W 16, Job W 17 and the closing stock under the
methods aforesaid and discuss from different points of view which method
you would prefer.
ANSWERS/SOLUTIONS
Answers to the MCQs based Questions
1. (b) 2. (a) 3. (c) 4. (b) 5. (b) 6. (b)
7. (a) 8. (b) 9. (b) 10. (b)
Answers to the Theoretical Questions
1. Please refer paragraph 2.10
2. Please refer paragraph 2.5
3. Please refer paragraph 2.10
4. Please refer paragraph 2.6.4
5. Please refer paragraph 2.6.1
6. Please refer paragraph 2.6.4
7. Please refer paragraph 2.6.1
Answers to the Practical Problems
1. (a) Total Annual Cost in Existing Inventory Policy
(`)
Ordering cost (6 orders @ ` 25) 150
Carrying cost of average inventory (36,000 ÷ 6) = 6,000 units per order
Average inventory = 3,000 units
Carrying cost = 20% of ` 1 × 3,000 = 3,000 × 0.20 600
Total cost A 750
2×36,000×25
EOQ = = 3000 units
` 1×20%
(`)
No. of orders = 36,000 ÷3,000 units = 12 orders
Ordering cost (12 × ` 25) = 300
Carrying cost of average inventory (3,000 × 0.20) ÷ 2 = 300
Total Cost B 600
Savings due to E.O.Q ` (750 – 600) (A – B) 150
Note: As the units purchase cost of ` 1 does not change in both the
computation, the same has not been considered to arrive at total cost
of inventory for the purpose of savings.
2. (i) Calculation of Economic Order Quantity
(`)
Purchase Cost (8,000 units × ` 400) 32,00,000
Ordering Cost [(8,000 units/200 units) × ` 200] 8,000
Carrying Cost (200 units × `400 × ½ × 20/100) 8,000
Total Cost 32,16,000
(`)
Purchase Cost (8,000 units × `384) 30,72,000
Ordering Cost [(8,000 units/4000 units) × `200] 400
Carrying Cost (4000 units × `384 × ½ × 20/100) 1,53,600
Total Cost 32,26,000
2AO
3. EOQ =
C
Where,
A = Annual Demand
O = Ordering cost per order
C = Inventory carrying cost per unit per annum
(i) Calculation of EOQ
(ii) Total annual relevant cost = Total annual relevant ordering costs +
Total annual relevant carrying cost
(iii) Number of deliveries for Super Grow and Nature’s own fertilizer per
Annual demand for fertilizer bags
year =
EOQ
5. (a)
Total Order No. of Cost of Ordering Carrying cost Total Cost
annual size orders inventory cost p.t. p.a (4+5+6)
require (Ton) A/q A × Per ton cost A/q × 1/2× q × 20% (`)
ment (q) (`) `1200 of cost p.t. (`)
(A) (`)
1 2 3 4 5 6 7
5,000 400 12.5 60,00,000 15,000 48,000 60,63,000
Ton (5,000×`1200) (200 × ` 240)
500 10 59,00,000 12,000 59,000 59,71000
(5,000 × ` 1180) (250 × ` 236)
1,000 5 58,00,000 6,000 1,16,000 59,22,000
(5,000× ` 1160) (500 × ` 232)
2,000 2.5 57,00,000 3,000 2,28,000 59,31,000
(5,000×` 1140) (1,000×`228)
3,000 1.666 56,00,000 2,000 3,36,000 59,38,000
(5,000×` 1120) (1,500×`224)
The above table shows that the total cost of 5,000 units including
ordering and carrying cost is minimum (` 59,22,000) when the order
size is 1,000 units. Hence the most economical purchase level is 1,000
units.
(b) If there will are no discount offer then the purchase quantity should
be equal to EOQ. The EOQ is as follows:
2AO
EOQ = C
where A is the annual inventory requirement,
O is the ordering cost per order and
C is the carrying cost per unit per annum.
2×5,000units × `1,200
= 200 units
= 20% × `1,500
6. Basic Data:
A (Number of units to be purchased annually) = 5,000 units
O (Ordering cost per order) = ` 20
2×5,000 units×`20
2. Re-order Quantity (ROQ) = = 200 units
5
Stores Ledger of AT Ltd. for the month of September, 20X8 (FIFO Method)
RECEIPT ISSUE BALANCE
Date GRN Qty. Rate Amount Requisi- Qty. Rate Amount Qty. Rate Amount
2.80
No Units (`) (`) tion No Units (`) (`) Units (`) (`)
MRR
No.
1 2 3 4 5 6 7 8 9 10 11 12
10 5.75
15-9-X8 33 25 6.10 152.50 — — — — 210.00
25 6.10
17-9-X8 — — — — 121 10 5.75 57.50 25 6.10 152.50
25 6.10
19-9-X8 38 10 5.75 57.50 — — — — 210.00
10 5.75
5 5.75
20-9-X8 4 5 5.75 28.75 — — — — 25 6.10 238.75
10 5.75
5 5.75 20 6.10
26-9-X8 — — — — 146 59.25 179.50
5 6.10 10 5.75
18 6.10
30-9-X8 — — — — Shortage 2 6.10 12.20 167.30
10 5.75
No.
Jan. 1 Purchase 100 1 100 — — — 100 1 100
100 1 100
Jan. 20 Purchase 100 2 200 — — —
100 2 200
100 1 100
2.83
Statement of Material Values allocated to Job W 16, Job 17 and Closing Stock, under aforesaid methods