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CMA Intermediate · Cost Accounting · Material Costs

Under the FIFO method of pricing material issues, which statement is correct?

Under FIFO, issues are priced at the cost of the oldest lot in stock, so the closing stock remains valued at the most recent purchase prices. This follows from the assumption that materials received first are consumed first. The reverse pattern describes LIFO.

  1. AIssues are priced at the latest purchase price, so closing stock is valued at the oldest prices
  2. BIssues are priced at the oldest available lot price, so closing stock is valued at the most recent purchase pricesCorrect
  3. CIssues are priced at the average of all lots in stock
  4. DIssues are priced at the standard price irrespective of the purchase price

Explanation

FIFO assumes materials received first are issued first. Issues therefore carry the oldest lot price, and the stock left over consists of the latest purchases, so closing stock reflects recent prices. Option 0 describes LIFO.

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