## Material Issue Pricing — Cost-Based Methods
The pricing method determines the cost charged to production when materials are issued and the value of closing stock.
### (i) Specific Price Method
Materials purchased for a specific job are issued to that job at their actual purchase price. Each lot must be stored separately with its own account.
| Advantage | Disadvantage |
|---|---|
| Exact, actual cost assigned to job | Difficult when purchases/issues are numerous |
| Best for non-standard, custom products | Impractical for fungible materials |
### (ii) First-In-First-Out (FIFO)
Issues are priced at the cost of the oldest (earliest purchased) batch still in stock, reflecting the physical flow.
| Advantage | Disadvantage |
|---|---|
| Simple; actual cost to production | Clerical errors when prices fluctuate frequently |
| Closing stock near current market price | Same job may show different costs in different periods |
| Better results when prices are falling | In rising prices, production cost understated → apparent profits may be too high to sustain repurchase |
### (iii) Last-In-First-Out (LIFO)
Issues are priced at the cost of the most recently purchased batch.
| Advantage | Disadvantage |
|---|---|
| Issued cost reflects current market price | Calculations complex with frequent purchases |
| In rising prices, avoids overstating profit | Similar batches produced simultaneously may have different costs |
| Smooths profit fluctuations over time | In falling prices, stock may need heavy write-down |
| In inflation, shows more correct profit; reduces undue tax | Not permitted under AS-2 / Ind AS-2 |
> Critical Note: LIFO is not permitted under AS-2 (Valuation of Inventories) and Ind AS-2 (Inventories). It is included in study material for academic understanding only.
### (iv) Base Stock Method
A minimum reserve quantity (base stock) is held permanently and valued at the price of the first lot received. Stock above this base is valued using FIFO or LIFO.
- Base stock remains unaffected by price fluctuations.
- Not an independent method — advantages/disadvantages depend on the supplementary method (FIFO or LIFO) used.
- Since it relies on LIFO for the excess portion, it is also not typically accepted for statutory purposes.