Page 10 - Cost Accounting - Ready Reckoner

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2. LIFO (Last In First Out)
3. Simple Average Method
4. Weighted Average Method
5. Replacement Price Method
6. Standard Cost Method
7. Base Stock Method

While preparing Stores Ledger:
 Simple Average Method follows FIFO as a hidden method to determine the Issue
Price.
 Shortage or loss of stock is considered as issue of materials. Issue price shall be
based on method adopted.
 Return of materials from production department to purchase department is
regarded as receipts.
 Return of materials from purchase department to supplier is considered as issue.
 Issue Price of returns shall be based on what price it was purchased.

Methods of Classification of Stocks for Management & Control:

1. ABC Analysis:
Goods are classified based on value and weight.
A category items are high in value and less in weight.
B category items are moderate in value and weight.
C category items are less in value and high in weight.
ABC Analysis is called as 80 – 20 principle or 70 – 30 principle. This analysis of stock
facilities management by exception.
For example: Jewelry Shops
A – denotes items with less quantity and more in Eg. Diamond
price
B – denotes where purchase quantity will be Eg. Gold
constant and price also is constant
C – denotes items with high in quantity but low in Eg. Silver
cost

2. VED Analysis:
Goods are classified into vital, essential and desirable items.

This method is primarily used in Automobiles
V – Vital Eg. Engine Production will Stop
E – Essential Eg. Tyres
D - Desirable Eg. Seat Cover Production will not Stop