In a manufacturing concern, there are different approaches to valuing or pricing materials issued for production. The exact method used usually depends on the nature of the materials and the nature of the business itself.

Whichever method of pricing materials issued is followed, the actual issue of materials will always be recorded from the earliest consignment. The main methods used to price materials issued are:

  1. Cost Price Method
  2. Market Price Method
  3. Average Price Method
  4. Fixed Price Method
  5. Inflated Price Method
  6. Base Stock Method

Choosing a Pricing Method For Materials Issued

Selecting a method for pricing materials issued cannot be done by following a formula. The choice depends on considering multiple factors, including:

  • The nature of production (intermittent or continuous)
  • Volume/frequency of receipts of materials
  • Variations and fluctuations in price and their nature
  • Frequency of issues of material
  • Stock turnover rate
  • Effect of pricing method on tax payable
  • Clerical labor involved in the method
  • Traceability of the issue to the particular lot or consignment
  • Nature of the cost accounting system followed

True is a Certified Educator in Personal Finance (CEPF®), contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.