COST ACCOUNTING

UNIT 2 - METHODS OF PRICING MATERIAL ISSUES

1. LIFO – LAST IN FIRST OUT

The method is just reverse of FIFO. It is based on the assumption that last purchases of materials are
issued first and earlier receipts are issued in the last. LIFO method uses the price of the last batch
received for all issues until all units from this batch have been issued. After that, price of the
previous batch received is used.

Two points to be noted:

a) Issues are priced at actual cost and at the latest prices paid.
b) Closing stock is valued at the old prices and is completely out of line with current prices.

FORMAT

Stores Ledger Account – LIFO METHOD

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Amt
Rs. Rs. Rs.
(Rs) (Rs) (Rs)

Problems
1. The following transaction occur in the purchase and issue of a material:
Jan 2 Purchased 4000 units @ Rs 4.00 per unit
20 Purchased 500 units @ Rs. 5.00 per unit
Feb 5 Issued 2000 units
10 Purchased 6000 units @ Rs 6.00 per unit
12 Issued 4000 units
March 2 Issued 1000 units
5 Issued 2000 units
15 Purchased 4500 units @ Rs 5.50 per unit
20 Issued 3000 units
From the above, prepare the stores ledger account using LIFO method.

1 Prof SOGARA BI
HEAD, DEPARTMENT OF COMMERCE(UG)
KRUPANIDHI DEGREE COLLEGE
 Solution:

Stores Ledger Account – LIFO METHOD

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Amt
(Rs) Rs. Rs.
(Rs) (Rs) (Rs)
Jan 2 4,000 4.00 16,000 - - - 4,000 4.00 16,000

Jan 20 500 5.00 2500 - - - 4,000 4.00 16,000

500 5.00 2500
- - - 2,000
Feb 5
(500 5.00 2500
(1500 4.00 6,000 2500 4.00 10,000
6,000 6.00 36,000 - - - 2500 4.00 10000
Feb 10
6000 6.00 36,000
- - - 4,000 6.00 24,000 2500 4.00 10,000
Feb 12
2,000 6.00 12,000
Mar 2 - - - 1000 6.00 6,000 2500 4.00 10,000
1000 6.00 6,000

Mar 5 - - 2,000
(1000 6.00 6,000
(1000 4.00 4000 1500 4.00 6,000

Mar 15 4500 5.50 24750 - - - 1500 4.00 6000

4500 5.50 24750
- - - 3,000 5.50 16,500 1500 4.00 6,000
Mar 20
1500 5.50 8250

Balance of stock in hand: 1500 units at Rs 4.00 = Rs 6000

1500 units at Rs 5.50 = 8250
Total = 3000 units = Rs 14,250

2 Prof SOGARA BI
HEAD, DEPARTMENT OF COMMERCE(UG)
KRUPANIDHI DEGREE COLLEGE
 2. From the following prepare LIFO method
1st Jan Opening Stock 200 pieces @ Rs 2 each
th
5 Jan Purchases 100 pieces @ 2.20 each
th
10 Jan Purchases 150 pieces @ 2.40 each
th
20 Jan Purchases 180 pieces @ 2.50 each
2nd Jan Issues 150 pieces
th
7 Jan Issues 100 pieces
th
12 Jan Issues 100 pieces
th
28 Jan Issues 200 pieces

Solution:

Stores Ledger Account – LIFO METHOD

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Amt
(Rs) Rs. Rs.
(Rs) (Rs) (Rs)
1 Jan - - - - - - 200 2.00 400

2 Jan - - - 150 2.00 300 50 2.00 100

5 Jan
100 2.20 220 - - - 50 2.00 100
100 2.20 220
7 Jan - - - 100 2.20 220 50 2.00 100
150 2.40 360 - - - 50 2.00 100
10 Jan
150 2.40 360
12 Jan - - - 100 2.40 240 50 2.00 100
50 2.40 120
20 Jan 180 2.50 450 - - - 50 2.00 100
50 2.40 120
180 2.50 450
28 Jan - - - 200
(180 2.50 450
(20 2.40 48 50 2.00 100
30 2.40 72

Balance of stock in hand: 50 pieces at Rs 2.00 = Rs 100

30 pieces at Rs 2.40 =Rs 72
Total = 80 pieces = Rs 172

3 Prof SOGARA BI
HEAD, DEPARTMENT OF COMMERCE(UG)
KRUPANIDHI DEGREE COLLEGE
 3. Prepare stores ledger account using LIFO Method:
April 1 - Opening balance 10850 kg @ Rs 130 per kg
2 – Purchased 20000 kg at Rs 134 per kg
3 – Issued 6750 kg to production
5 – Issued 8500 kg to production
6 Received back 550 kg to production being surplus
7 - purchased 17550 kg @ Rs 128 per kg
8 - Issued 11,250 kg to production
9 -Physical verification revealed a loss 250 kg
10 - Issued 8950 kg to production
12 - Issued 6300 kg to production
15 - Purchased 10000 kg @ Rs 132 per kg
16 - Issued 7750 kg to production

Solution:

Stores Ledger Account – LIFO METHOD

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Amt
(Rs) Rs. Rs.
(Rs) (Rs) (Rs)
April 1 - - - - - - 10,850 130 14,10,500

April 2 20,000 134 26,80,000 - - - 10,850 130 14,10,500

20,000 134 26,80,000
April 3
- - - 6750 134 9.04,500 10850 130 14,10,500
13,250 134 17,75,500
April 5 - - - 8500 134 11,39,000 10850 130 14,10,500
4750 134 6,36,500
April 6 550 (Return) 134 73,700 - - - 10850 130 14,10,500
5300 134 7,10,200
17,550 128 22,46,400 - - - 10850 130 14,10,500
April 7
5300 134 7,10,200
17,550 128 22,46,400

April 8 - - - 11,250 128 14,40,000 10850 130 14,10,500

5300 134 7,10,200
6300 128 8,06,400

April 9 - - - 250(Loss) 128 32,000 10850 130 14,10,500

5300 134 7,10,200
6050 128 7,74,400

4 Prof SOGARA BI
HEAD, DEPARTMENT OF COMMERCE(UG)
KRUPANIDHI DEGREE COLLEGE
April 10 - - - 8,950
(6050 128 7,74,400
(2900 134 3,88,600 10,850 130 14,10,500
2400 134 3,21,600

April 12 - - - 6,300
( 2400 134 3,21,600
(3,900 130 5,07,000 6,950 130 9,03,500
April 15 10,000 132 13,20,000 - - - 6950 130 9,03,500
10,000 132 13,20,000

April 16 - - - 7,750 132 10,23,000 6950 130 9,03,500

2,250 132 2,97,000

Closing Stock = 6950 @ 130 = Rs 9,03,500

2,250 @ 132 = Rs 2,97,000
9200 = 12,50,000

4. Prepare a stores ledger account under LIFO Method:

2016 July
1 Opening balance 300 liters at Rs 25 per litre
3 Purchased 500 liters @ Rs 26.60 per litre
4 Issued 400 litres
10 Issued 400 litres
20 Purchased 490 litres @ Rs 23 per litre
25 Issued 300 liters
26 Surplus 20 liters returned to stores out of issues on 4th July.

5 Prof SOGARA BI
HEAD, DEPARTMENT OF COMMERCE(UG)
KRUPANIDHI DEGREE COLLEGE
 Solution:

Stores Ledger Account – LIFO METHOD

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Amt
(Rs) Rs. Rs.
(Rs) (Rs) (Rs)
July 1 - - - - - - 300 25 7500

July 3 500 26.60 13,300 - - - 300 25 7500

500 26.60 13,300
- - - 400 26.60 10640 300 25 7500
July 4
100 26.60 2660
July 10 - - - 400
( 100 26.60 2660
(300 25 7500 - - -
July 20 490 23 11,270 - - - 490 23 11,270
- - - 300 23 6900 190 23 4,370
July 25

July 26
20(Surplus 26.60 532 - - - 190 23 4370
– Material
20 26.60 532
returned)

Balance of stock = 190 liters @ Rs 23 = Rs 4370

= 20 Litres @ Rs 26.60 = Rs 532
210 litres = 4902

6 Prof SOGARA BI
HEAD, DEPARTMENT OF COMMERCE(UG)
KRUPANIDHI DEGREE COLLEGE
 5. From the particulars prepare a stores ledger account under LIFO Method:
1.3.2013 Opening stock 200 tones @ Rs 480 per tone
6.3.2013 Issued 140 tone
7.3.2013 Purchasing 350 tonnes @ of Rs 460 per tone
8.3.2013 Condemned due to deterioration in transferred to scrap 30 tones(loss)
9.3.2013 Issued 80 tones
14.3.2013 Issued 210 tones
17.3.2013 Purchased 200 tones @Rs 480 per tone
20.3.2013 Issued 280 tones
25.3.2013 Purchased 280 tones @ Rs 470 per tone
28.3.2013 Issued 293 tones
Excess found in stock 43 tones due to wrong weighing during the month(21-3-
2013).The maximum level is fixed 400 tones, minimum level 75 tones, the reorder
lecel is 100 tones, material name R, size = ¼, Bin No 2326

Solution:

Stores Ledger Account – LIFO METHOD

Bin NO : 2326 Maximum level 400 tones

Size ¼ Minimum level 75 tonnes
Material Name : R Reorder level 100 tones
Receipts Issues Balance
Date Rate Rate Rate
Qty Amt Qty Amt Qty Amt
(Rs) Rs. Rs.
(Rs) (Rs) (Rs)
1.3.2013 - - - - - - 200 480 96,000

6.3.2013 - - - 140 480 67,200 60 480 28,800

350 460 1,61,000 - - - 60 480 28,800

7.3.2013
350 460 1,61,000
8.3.2013 - - - 30(Loss) 460 13,800 60 480 28,800
320 460 1,47,200
9.3.2013 - - - 80 460 36,800 60 480 28,800
240 460 1,10,400
- - - 210 460 96,600 60 480 28,800
14.3.2013
30 460 13,800
17.3.2013 200 480 96,000 - - - 60 480 28,800
30 460 13,800
200 480 96,000
20.3.2013
- - - 280

7 Prof SOGARA BI
HEAD, DEPARTMENT OF COMMERCE(UG)
KRUPANIDHI DEGREE COLLEGE
 (200 480 96,000
(30 460 13,800
(50 480 24,000 10 480 4800
43(Excess) 480 20640 - - - 10 480 4800
21.3.2013
43 480 20640

280 470 1,31,600 - - - 10 480 4800

25.3.13
43 480 20640
280 470 1,31,600
- - - (293
28.3.2013
(280 470 1,31,600 10 480 4800
(13 480 6240 30 480 14,400

Closing stock 10 @ Rs 480 = 4800

30 @ 480 = 14,400
40 = 19,200

8 Prof SOGARA BI
HEAD, DEPARTMENT OF COMMERCE(UG)
KRUPANIDHI DEGREE COLLEGE