Pricing of material issues: FIFO, LIFO and weighted average stores ledger

Cost and Management Accounting · Foundations · Topic 4 of 18 · 4 min read

The methods of pricing issues of material, their merits and effect on profit, and the stores ledger worked under LIFO and weighted average on the January 2026 paper, with the January 2025 FIFO problem including a return to vendor.

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On this page

1. Why pricing matters
2. The methods
3. Solved: LIFO (January 2026, B.Com)
4. Solved: weighted average (same data)
5. Solved: FIFO with a return to vendor (January 2025, B.Com)
How this is examined

Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

The examinable core. “Prepare stores ledger account based on LIFO and weighted average” (January 2026, 10 marks), “on FIFO” (January 2025), and “Prepare LIFO statement” (January 2026, 100 marks, 16 marks). Use the three-block layout: receipts, issues, balance. Every balance line must equal the previous balance plus receipts less issues.

1. Why pricing matters

Material is bought in lots at different prices. When it is issued to production the cost accountant must decide which price to charge to the job, and the same decision fixes the value of closing stock. The choice affects product cost, profit and stock value, though not the total cost of material bought.

2. The methods

FIFO (first in, first out): issues are priced at the oldest lot still in stock. Closing stock is at the latest prices. In rising prices it charges low costs to production and shows higher profit.
LIFO (last in, first out): issues are priced at the latest lot. Production bears current prices; closing stock is at old prices. In rising prices it shows lower profit. Ind AS 2 does not permit LIFO for financial statements, though it remains a costing method and an exam topic.
Simple average: average of the prices of lots in stock, ignoring quantities.
Weighted average: total value of stock / total quantity, recomputed after every receipt. It smooths price changes. Ind AS 2 allows FIFO and weighted average.
Standard price: issues at a predetermined price; differences go to a material price variance.
Replacement or market price: issues at the current cost of replacing the material.

3. Solved: LIFO (January 2026, B.Com)

April 1 opening 200 units at Rs. 2; 5th purchased 400 at Rs. 3; 10th issued 250; 16th purchased 500 at Rs. 3; 20th issued 300; 30th purchased 200 at Rs. 4; May 1 issued 500.

Date	Receipts	Issues	Balance	Value
Apr 1			200 @ 2	400
Apr 5	400 @ 3 = 1,200		200 @ 2, 400 @ 3	1,600
Apr 10		250 @ 3 = 750	200 @ 2, 150 @ 3	850
Apr 16	500 @ 3 = 1,500		200 @ 2, 150 @ 3, 500 @ 3	2,350
Apr 20		300 @ 3 = 900	200 @ 2, 150 @ 3, 200 @ 3	1,450
Apr 30	200 @ 4 = 800		200 @ 2, 350 @ 3, 200 @ 4	2,250
May 1		200 @ 4 + 300 @ 3 = 1,700	200 @ 2, 50 @ 3	550

Issues total 3,350; closing stock 250 units, Rs. 550. Check: receipts 400 + 1,200 + 1,500 + 800 = 3,900 = 3,350 + 550.

4. Solved: weighted average (same data)

Date	Receipt / issue	Balance qty	Balance Rs.	Rate
Apr 1	Opening	200	400.00	2.0000
Apr 5	+400 @ 3 = 1,200	600	1,600.00	2.6667
Apr 10	−250 @ 2.6667 = 666.67	350	933.33	2.6667
Apr 16	+500 @ 3 = 1,500	850	2,433.33	2.8627
Apr 20	−300 @ 2.8627 = 858.82	550	1,574.51	2.8627
Apr 30	+200 @ 4 = 800	750	2,374.51	3.1660
May 1	−500 @ 3.1660 = 1,583.01	250	791.50	3.1660

Issues total 666.67 + 858.82 + 1,583.01 = 3,108.50; closing stock 791.50; together 3,900. Compared with LIFO, the weighted average charges less to production (3,108.50 against 3,350) and values closing stock higher, because prices were rising.

5. Solved: FIFO with a return to vendor (January 2025, B.Com)

Opening 2,000 at Rs. 26; issues of 1,000 and 800; purchase 1,500 at Rs. 27.50; issues of 400 and 320; purchase 1,000 at Rs. 29; issue 1,400; return to vendor of 30 units from the 6th January lot; purchase 1,500 at Rs. 34.

Issues of 1,000 and 800 at 26 = 26,000 and 20,800; balance 200 @ 26.
Issue of 400 = 200 @ 26 + 200 @ 27.50 = 10,700; issue of 320 @ 27.50 = 8,800; balance 980 @ 27.50.
Issue of 1,400 = 980 @ 27.50 + 420 @ 29 = 26,950 + 12,180 = 39,130; balance 580 @ 29.
Return to vendor is shown as a minus in receipts, at the price of the lot returned: 30 @ 29 = 870; balance 550 @ 29 = 15,950.
Purchase 1,500 @ 34 = 51,000; closing stock 550 @ 29 + 1,500 @ 34 = 2,050 units, Rs. 66,950.

Special items. Material returned from a department to stores is entered in receipts at the price at which it was issued. A shortage found on verification is treated as an issue (normal loss goes to overheads, abnormal loss to costing profit and loss). Under LIFO and FIFO, never split a lot unless the issue needs more than the lot contains.

How this is examined

The stores ledger is the 10-mark alternative to the inventory-techniques essay in Unit II, and the 100-mark paper sets a LIFO statement for 16 marks. Draw the ruled three-block table, show each lot separately in the balance column, total the issues, and close with the arithmetic check. A two-line comment on the effect on profit earns the last mark.

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