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Thursday, May 13, 2010

Methods Of Pricing Materials Issued

There are various methods in use of pricing issues of materials from store. The selection of suitable method is significant from the viewpoint of cost absorbed and consequently on profit. Therefore, the method should be selected in the light of probable effects on profit over a period of years.

Material is purchased specially for a job. The material issued is charged to the job at its landed cost. Landed cost include the invoice price, freight, cartage and insurance charges on materials. Issue of such items can not be linked with a particular 'lot' and therefore, exact landed cost of the particular unit issued can not be identified. If the purchase price for each lot is different from that of the others, the question arises as to which purchase should be taken into consideration for pricing material issues.

Some important and mostly used methods of pricing are as follows.

1. First In First Out(FIFO) Method
2. Last In First Out(LIFO) Method
3. Simple Average Method(SAM)