Pricing Methods of Material Issued
Different methods can be used for the purpose of valuing or pricing of materials issued for production in a manufacturing concern. The actual method to be adopted in a manufacturing concern shall depend upon the nature of materials and the nature of the business itself. It is important to note that whichever method of pricing the material issues is followed, the actual issue of materials will always be from the earliest consignment. The important methods applied for pricing material issues are as follows:
- Cost Price Method.
- Market Price Method.
- Average Price Method.
- Fixed Price Method.
- Inflated Price Method.
- Base Stock Method.
Selection of a Proper Pricing Method of Materials
Selection of the method for pricing out materials is not possible with the help of any particular rules. The selection will be made by taking into account a number of factors which may be given as follows:
- The nature of production — whether intermittent or continuous.
- Volume/frequency of receipts of materials.
- Variations and fluctuations in prices and their nature.
- Frequency of issue of material.
- Stock turnover rate.
- Effect of pricing method on tax payable.
- Clerical labour involved in the method.
- Traceability of the issue to the particular lot or consignment.
- Nature of the cost accounting system followed.