CA Intermediate · Cost and Management Accounting · Material Cost
Under the FIFO method of pricing material issues, in a period of rising prices, which statement is correct?
Under FIFO the oldest stock is issued first, so the stock left at period end is made up of the latest purchases. In a period of rising prices, closing stock is therefore valued at the most recent purchase prices.
- AClosing stock is valued at the most recent purchase pricesCorrect
- BIssues are charged at the latest purchase price
- CClosing stock is valued at the oldest purchase prices
- DIssues are charged at the average of all prices
Explanation
FIFO assumes the earliest received material is issued first, so issues carry older prices and the remaining closing stock consists of the latest purchases. Therefore closing stock reflects the most recent prices.
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