Under Simple average method the simple average of the prices of the lots available for making the issues is considered for pricing the issues. After the receipt of new lot, a new average price is worked out. This method is suitable if the material is received in uniform quantity.
Under Weighted average method the price of each lot and the quantity of the same is considered. This method proves to be very useful in the event of varying prices and quantities. It is very simple to calculate.
★ The classification of total cost as variable cost and fixed cost is difficult as no cost can be completely variable or completely fixed.
★ Fixed costs are eliminated for the valuation of inventory of finished goods and semi-finished goods in-spite of the fact that they might have been actually incurred.
★ It does not provide any standard for the evaluation of performance.
★ Fixation of selling price on marginal cost basis may be useful for short term only and may be dangerous in the long run.
★ It does not consider the fixed overheads.
★ It can be used for assessment of profitability only in the short run.
★ Element wise Classification
★ Function wise Classification
★ Variability wise Classification
★ Control-ability wise Classification
★ Normality wise Classification
★ Factory Overheads
★ Administration Overheads
★ Selling and Distribution Overheads
★ Fixed Overheads
★ Variable Overheads
★ Semi-variable Overheads
Control-ability wise Classification:
• Controllable Overheads
• Uncontrollable Overheads
Normality wise Classification:
★ Normal Overheads
★ Abnormal Overheads
★ Indirect Material
★ Indirect Labor
★ Indirect Expenses
★ Bin Card is a quantitative record of receipts, issues and closing balance of an item of material. Whereas Stores ledger records not only quantities received or issued or in stock but also the financial expressions of the same.
★ Bin Card is maintained by stores department while stores ledger is maintained by costing department.
★ Maintenance of stores ledger provides a second check on maintenance of bin cards.
★ It will block a large amount of working capital.
★ More storage facilities will be required.
★ Risk of deterioration of quality and obsolescence of material.
★ More attention will be required in material handling and up keeping.
★ Additional Insurance cost.