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Test Questions-Inventory Pricing and Valuation

  1. What is meant by Inventory ?
  2. Explain the concept of inventory valuation.
  3. What are the objectives of inventory valuation ?
  4. Describe the various bases of inventory valuation.
  5. List out the eight methods of valuing material issues.
  6. State briefly the different methods of pricing material issues and indicate their impact on the ascertainment of profits.
  7. Describe the Techniques of inventory control.
  8. What factors have to be considered for adopting a method for pricing of materials ? 

PROBLEMS AND SOLUTIONS 

Problem 1. The stock of material in hand as on 1st September was 500 units@ $ 10 per unit. The following purchases and issues were subsequently made. Prepare the stores ledger account showing how the value of the issues would be recorded under FIFO method. 

Purchases :     6th Sep 100 units at $ 11

20th Sep. 700 units at $ 12

27fh Sep. 400 units at $ 13

13th Oct. 1000 units at $ 14

20th Oct. 500 units at $ 15

17fh Nov 400 units at $ 16 

Issues :            9th Sep. 500 units

22nd Sep. 500 units

30th Sep. 500 units

15th Oct. 500 units

22nd Oct. 500 units

11th Nov. 500 units

Solution:

Value of the stock in hand $ 9,400

i.e., 200 * 15 + 400 * 16 = $ 9,400

 

Problem 2. Prepare stores ledger account from the following transaction under FIFO method: 

(1) Jan1           Received         1000 units        at $ 20            per unit

(2) Jan 10        Received          260 units          at $ 21             per unit

(3) Jan 20

(4) Feb 4

(5) Feb 21

(6) Mar16

(7) Mar 18

(8) Mar 21

(9) Mar 29

Issued

Received

Received

issued

issued

Received

issued

700 units

400 units

300 units

620 units

240 units

500 units

380 units

 

at $ 23

at $ 25

 

 

at $ 22

 

per unit

per unit

 

 

per unit

Solution:

Value of the stock in hand = 20 * 25 + 240 * 3 + 500 * 22 = 12,220

 

Problem 3. From the following transaction, prepare separate stores ledger accounts using the following pricing methods. 

(i) FIFO and (ii) LIFO

January 1        Opening balance         100 units          @ $ 6 each

January 5        Received                      500 units          @ $ 6 each

January 20      Issued                          300 units

February 5        Issued

February 6       Received

March 10          Issued

March 12           Issued

200 units

500 units            @ $ 5 each

300 units

250 units

Solution:

Value of stock in hand is $ 250 i.e., [50 * 5 = 250].

Value of Stock in hand is $ 800 [100 * 5 + 50 * 6 = 800]