First in first out method

access_time 2019-01-21T06:51:50.977Z face CA N Raja COST ACCOUNTING

Let us consider stores department  as an example. which receives material when they are purchased and issues the materials for onsumption.When materials are issued for production, They have to be priced and closing stock of material have to be valued. If materials are issued for production at the price in which they are purchased or say at the order in which they are purchased.Then that method of pricing the issue of materials is called as first in first out method.By following this method issue of materials will recover the purchase price and it will not reflect the current market price and because of this reason this method is considered suitable especially when prices are falling in the market. Reason is Material cost that is charged to production will be high but the replacement cost of materials will be low.

 

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