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Outgoing Materials

Materials are issued to different job work orders from the stores. These jobs or work orders are charged with the value of materials issued to them. However, the stock of materials consists of different consignments received at different dates and prices, and therefore, it becomes necessary to decide about the price which is to be charged from a particular job when materials are issued to it. Following are the important methods of valuing material issues:

Pricing of shortages

During physical verification from time to time some material may be found short. These shortages are recorded in the “issue” column and priced as per the method of issue adopted.

Specific price method

Under this method materials are issued at the price at which they were originally purchased. It, therefore, involves identification of each lot purchased. This method is generally used when the materials have been purchased for a specific job. Such materials, when received are earmarked for the job against which they are purchased and are issued only against that particular job when demanded by the production department. The method Is not used when the material is meant for general use.

First in, first out method

Under this method it is assumed that the materials first received are first to be issued and thus units issued are priced at the oldest cost price listed on the stock ledger sheets. It does not, however, mean that the physical disposal of the stock is actually in the order of first in, first out. However, an endeavour is made in this system that materials which run the risk of obsolescence are issued first.

Last-in, first-out method

The method is based on the assumption that last item of materials purchased is the first to be issued. Thus, in this method the price of the last consignment is used for pricing material issues until it is exhausted, then the next consignment pricing is used and so on through successive consignments.

Base stock method

The method is based on the contention that each enterprise maintains at all times minimum quantity of materials in its stock. The quantity is termed as base stock. The base stock is deemed to have been created out of the first lot purchased and therefore, it is always valued at this price and is carried forward as a fixed asset. Any quantity over and above the base stock is value in accordance with any other appropriate method. As this method aims at matching current costs to current sales, the LIFO method will be most suitable for valuing stock of materials other than the base stock. The base stock method has the advantage of charging out materials at actual cost. Its other merits or demerits will depend on the method which is used for valuing materials other than the base stock.