Group name : Capital Promoters

Topic : Material Costing

Members :(MB 178)Sunil saini, (MB 51)Neha ,(111) Ravi kumar

INTRODUCTION (BY SUNIL SAINI )

Material is a very important factor of production . It is a first and most important element of cost . Materials accounts for nearly 60% of cost of production .material costing is the techniques of measuring the inventory of the organization .there are so many techniques of material costing , which are explained further

DISSCUSION ( By Neha ,Ravi)

METHODS OF MATERIAL ISSUES

Last In First Out (LIFO)

The last in first out (LIFO) method of costing materials issued is based on the premise that materials units issued should carry the cost of the most recent purchase, although the physical flow may actually be different.

Under LIFO procedures, the objective is to charge the cost of current purchases to work in process or other operating expenses and to leave the oldest costs in the inventory.

Advantages of Last In First Out (LIFO) Method:

1) It is simple to operate .
2) It is useful when transactions are not too many and the prices are fairly steady.
3) This method is logical .
4) It is suitable during price rise conditions .

First In First Out (FIFO)

The methods assume that materials are issued from the oldest supply in stock and that the cost of those units when placed in stock is the cost of those same units when issued. However, FIFO costing may be used even though physical withdrawal is in a different order.

Advantages of First in First out (FIFO)

1)The main advantage of FIFO method is that it is simple to understand and easy to operate.

2) This method is useful when prices are falling.

3) This method is also useful when transactions are not too many and prices of materials are fairly steady.

4) Closing stock of materials will be valued at the market price as the closing stock under this method would consist of recent purchase of materials.

Highest In First Out (HIFO)

The inventory with the highest cost of purchase is the first to be used or taken out of stock. This will impact the company's books such that for any given period of time, the inventory expense will be the highest possible. Companies would likely choose to use the HIFO inventory method if they wanted to decrease their taxable income for a period of time. Because the inventory that is recorded as used up is always the most expensive inventory the company has (regardless of when the inventory was purchased), the company will always be recording maximum cost of goods sold.

AVERAGE COSTING

Total cost of all materials of a particular class by the number of units on hand to find the average price. The cost of new invoices are added to the total in the balance column; the units are added to the existing quantity; and the new total cost is divided by the new quantity to arrive at the new average cost. Materials are issued at the established average cost until a new purchase is recorded.

Advantages of Average Costing Method

1. It is a realistic costing method useful to management in analyzing operating results and appraising future production.

2. It minimizes the effect of unusually high or low materials prices, thereby making possible more stable cost estimates for future work.

3.It is practical and less expenses perpetual inventory system

CONCLUSION

So in the end we conclude that, as there are so many methods of material issues but we are discussing here some important methods which are practically used in the organizations .among these we think that the most appropriate method is LIFO AND FIFO .Because these are easy to calculate and useful when the prices increases and decreases .