## Market Price Methods
### Replacement Price Method
Materials are issued at the current market price — i.e., what it would cost to replace the item today.
- Suitable in: rising price periods
- Advantage: Production cost reflects current economic reality
- Disadvantage: Current market price must be determined fresh before every issue — operationally burdensome
### Realisable Price Method
Materials are issued at the net realisable value — the price at which the material could currently be sold in the market.
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## Notional Price Methods
### Standard Price Method
Materials are issued at a pre-determined standard price (not actual purchase cost).
| Advantage | Disadvantage |
|---|---|
| Simple — issue value = quantity × standard rate | Standard ≠ actual → variance (gain or loss) always arises |
| Enables material cost control | Difficult to set a meaningful standard when prices fluctuate widely |
| Evaluates purchase department efficiency against standard | — |
> Any difference between standard price and actual purchase cost is isolated as a material price variance, helping management pinpoint purchasing efficiency.
### Inflated Price Method
Materials are issued at a rate inflated above actual cost to pre-absorb normal losses arising from natural causes such as evaporation, shrinkage, or spillage during storage.
> Example: If 5% of solvent evaporates in storage, issue price is inflated by ~5% so that the cost of normal loss is automatically spread across all issues rather than appearing as a period loss.
### Re-use Price Method
Applied when rejected or returned material is put back into use. The re-issue price reflects the material's current usable value, which differs from its original purchase price (since it was previously rejected or returned).