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Explain Last In, First Out (LIFO) as a method of Valuing Material Issues

Explain Last In, First Out (LIFO) as a method of Valuing Material Issues

Answers

Wilfred
This method assumes that the goods issued on any particular date are those which were most recently acquired and therefore stocks whose cost is to be carried forward are those which were acquired earliest. The materials are issued at the cost price of that consignment which was received most recently. The advantage of the method is that it reflects the current economic value of goods charged to production.
Is based on the assumption that the stock purchased last is issued first. Stock valuation should therefore be based on the prices ruling on the acquisition of the last stocks.

Advantages
1. Product costs tend to be based on current market prices and is therefore realistic.
2. A charge to production is as closely related to current price levels as possible

Disadvantages
1. Stocks are valued at the oldest prices.
2. It involves tedious calculations if the price of materials fluctuate from time to time.
3. Comparison of one job with another may be unfair and difficult
Wilfykil answered the question on April 17, 2019 at 06:45

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