When raw materials leave the store and head to the production floor, someone has to put a ₹ value on them — this is called pricing of material issues. Why does it matter? Because this price directly flows into your Cost of Production, affects your product's selling price, and ultimately hits profit. The ICAI tests this heavily because a wrong method choice can distort the entire cost sheet.
The curriculum covers five main methods, but for numericals the big three are FIFO, LIFO, and Weighted Average Price (WAP). FIFO (First In, First Out) assumes the oldest stock is issued first — like a pharmacist using medicines with the earliest expiry date first. Issue price = cost of the oldest batch. Closing stock reflects recent, higher prices. In a rising market, FIFO shows higher profits. LIFO (Last In, First Out) flips the logic — newest stock goes out first, older cheaper stock sits in the closing balance. One critical rule: LIFO is banned under AS 2 and Ind AS 2 for financial statements, but it is absolutely testable in Cost Accounting numericals — don't let that confuse you. Weighted Average Price (WAP) is the ICAI's favourite. After every new purchase, you recalculate: Total Cost Available ÷ Total Units Available. Every issue goes out at this blended price. It smooths price swings and is the most practical for factory costing.
Simple Average Price averages only the rates, ignoring quantities — if you bought 10 units @ ₹10 and 1,000 units @ ₹50, simple average gives ₹30, which is clearly misleading. It's tested precisely to catch students who confuse it with WAP. Standard Price uses a pre-fixed budgeted rate for the whole period; differences between actual and standard cost are recorded as price variances and are central to Standard Costing. Exam questions on pricing of issues typically ask you to prepare a Stores Ledger showing Opening Balance, Receipts, Issues, and Closing Balance — always show all four columns clearly for full marks. This topic appears almost every attempt as an 8–10 mark numerical.