methods of pricing final

8/8/2019 Methods of Pricing Final

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1.FIRST IN FIRST OUT2. LAST IN LAST OUT

3.SIMPLE AVERAGE PRICE4.WEIGHTED AVERAGE PRICE

5. REPLACEMENT PRICE6. STANDARD PRICE

7. BASE MARKET PRICE


2/18

FIRST IN FIRST OUT

yThe material which are purchased first are issued first.

y It uses price of the first batch of materials purchasedfor all issues until all units from his batch have been

issued.

y after the first batch is fully issued, the price of the nextbatch received becomes the issue price.


3/18

ADVANTAGES

y Based on a realistic assumption that materials which

are received first are issued first.

y Material are issued at a actual cost

y

Closing stock of valuation is at cost as well as thelatest market prices.

y Quite simple to operate and easy to operate


4/18

DISADVANTAGES

y Materials are not charged at the current market prices.

y Sometimes produces unfair results as between one jobto another.

yWhen transactions are large in number and the pricefluctuates very frequently.


5/18

LAST IN FIRST OUTy the assumption that last purchases of

materials are issued first and earlier receipts

are issued in the last.


6/18

ADVANTAGES

y material issued is closely related current market

prices

y material are issued at actual cost

ywhen prices are higher prices of the most recentpurchases are charged to production


7/18

DISADVANTAGES

y stock is valued at cost,

y it is not realistic

y the material cost of similar jobs may differ


8/18

SIMPLEAVERAGEMETHOD

y By adding all the different prices and dividing by thenumber of such prices.

y It doesn't take into account quantities of materials

which computing average price


9/18

ADVANTAGES

y it is simple to operate and easy to understand


10/18

DISADVANTAGES

y Materials are not charged out at actual cost

y It is unscientific and usually produces unsatisfactoryresults


11/18

WEIGHTEDAVERAGE METHOD

y It gives due weight to the quantities held at

each price when calculating the price.


12/18

ADVANTAGES

y Effect of widely varying prices of different purchases.

y New issue price is calculated only at the time of eachnew purchase and not the time of each issue

y No unrealised profit or loss arises


13/18

DISADVANTAGES

y where receipt are numerous, this method require agood deal of calculations

y issue prices generally run to a number of decimal

points

y materials are not issued at the current market prices


14/18

REPLACEMENT PRICE METHOD

y Materials are charged at the market price on

the date of issue.


15/18

ADVANTAGESy Materials are issued at the current market price.

y simple

y no calculation are required


16/18

DISADVANTAGESy issues are not priced at actual cost

y valuation of stock is not at the current prices.

y not easy to available


17/18

STANDARD PRICE METHOD

yA standard or predetermined price is calculated and

materials issued are valued at the price.

y standard price is a notional price and is not a actualcost price.


18/18

BASE STOCK METHOD

yAssumes that minimum stock is always held in stockand not issued.

y theoretically sound, is not often met with in practice.

methods of pricing final

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