## Methods of Pricing Material Issues
When material is issued from stores to production, it must be priced. Several methods exist.
### A. First-In First-Out (FIFO)
- Issues priced in the order materials were purchased — oldest stock issued first.
- Each issue recovers the purchase price of the earliest lot, which does not reflect current market price.
- Closing stock is valued at the latest (most recent) prices.
### B. Last-In First-Out (LIFO)
- Assumes the latest lot purchased is issued first; latest prices used until that lot is exhausted, then the next-latest, and so on.
- If issue quantity exceeds the latest lot, the earlier lot's price is also used for the balance.
- Issue cost reflects recent prices; closing stock carries older prices.
### C. Simple Average Price Method
- Issues valued at average of the rates of the different lots = (sum of unit rates of lots) ÷ (number of lots).
- Quantity per lot is ignored.
- The price of a lot completely sold out is dropped from the average going forward.
### D. Weighted Average Price Method
- Unlike simple average, this weights by quantity.
- Issue price = (Σ of price × quantity) ÷ (Σ of quantities) = total value of stock ÷ total units in stock, recomputed after each receipt.
### E. Base Stock Method
- A minimum (base) quantity is always held as a reserve for emergencies, valued at the price of the first lot received, and unaffected by later price changes.
- Stock above the base is priced by another method (e.g. FIFO/LIFO).
### F. Replacement Price Method
- Issues valued at the replacement (current market) cost — the price at which identical material could currently be purchased.
- Requires determining replacement cost at the time of each issue.
- Product cost reflects current market price, which is the method's main objective.