Test: Pricing of Material - B Com MCQ

The purpose of selecting a method of pricing material issues in a production department is to accurately calculate the cost of materials used in production. This is important for determining the total cost of producing goods or services and for tracking the expenses associated with the production process. Different methods, such as FIFO, LIFO, and weighted average, can be used to price material issues depending on the specific requirements and circumstances of the business. These methods help ensure that the cost of materials is accurately reflected in the financial records and facilitate cost analysis and comparison between different batches of production.

The correct answer is Option B: First-in First-out (FIFO) Method. This method assumes that materials which are purchased first are issued first. It uses the price of the first batch of materials purchased for all issues until all units from this batch have been issued. This method is logical, easy to understand, and facilitates cost comparisons between different batches of production.

The correct answer is Option C: Last-in First-out (LIFO) Method. This method assumes that the materials used in production are from the latest purchase, and the inventory is priced at the oldest costs. It is also known as the replacement cost method as it applies the current cost of materials to the cost of units.

The correct answer is Option D: Highest-in First-out (HIFO) Method. This method assumes that the costliest materials are issued first and values the inventory at the lowest possible price. It is mainly used for monopoly products or cost plus contracts and requires detailed records.

The correct answer is Option A: Standard Price Method. This method prices materials by taking into account all factors affecting price, such as market trends and transportation costs, and determines standard prices for each material. Standard prices can be fixed for long periods (basic standard) or adjusted to prevailing trends in markets (current standard).

The correct answer is Option A: Simple Average Method. This method calculates the average price by dividing the total rates of materials by the number of rates of prices, ignoring the quantities involved. It can be used when prices are normally stable and the stocks purchased are in equal quantities or the stock value is small.

The correct answer is Option B: Weighted Average Method. This method takes into account the total quantities and total costs while calculating the average price. It is calculated by dividing the total cost by the total quantity to arrive at the value. Weighted Average Method avoids price fluctuations and gives an acceptable figure for stock.

The correct answer is Option B: Inflated Price Method. This method includes carrying costs and losses due to evaporation to recover the full costs of materials purchased. It aims to account for all costs associated with the materials.

The correct answer is Option C: Market Price Method. This method prices materials at the current market price, which is the cost of the same type of materials in the market at any given time. It is used for calculating the issue price of obsolete and slow-moving stores. The market price method provides a realistic and competitive selling price.

The correct answer is Option A: Specified Price Method. This method prices materials at the actual purchase price when materials are purchased for a particular job or issues can be identified with a particular receipt. However, this method has limited application and is only suitable when prices are stable or materials are covered by price control orders.