MAF151

FUNDAMENTAL COST
ACCOUNTING

PREPARED BY: LIYANA BINTI AB RAHMAN

 LEARNING OBJECTIVES
• Introduction.
1

• Material Control Cycle.

2

• Procurement.
3

• Stock Investment Control.

4

• Store Keeping.
5

6 • Stock Take.

7 • Issuance of Stock and Methods of Stock Valuation

 3.1 INTRODUCTION
 Cost accounting materials are classified into direct
material and indirect material.
Direct material - The raw materials which can be
directly identified to the product.
Indirect material - Needs for completion of product
but the consumption with regard to the product is
small or complex where it would be not appropriate
to treat it as direct materials item.

 DM cost represents the dominant costs in

manufacturing organizations, therefore accounting
and control of materials is very important.
 Objectives of inventory management:
To ensure the proper standard and quality of
material purchased.
To ensure the supply of material are available
when needed.
To ensure proper utilization of material to avoid
wastage.
To ensure proper storage of materials.
 The essential of material control include the following:
Material should be purchased only when required and
appropriately authorized.
The best supplier chosen should be able to deliver
goods on time at appropriate price and at the best
quality.
Uses proper forms and records.
Material should be properly received and inspected.
Materials are classified and coded.
Appropriate storage facilities should be provided.
Direct material cost should be charged on an
appropriate and consistent pricing basis.
Maintains material cost within budget.
The documentation and accounting systems and
controls should be well designed and effective
Stock taking must be well organized.
3.2 MATERIAL CONTROL CYCLE
1. PURCHASING
Material Requisition Note – Use to request for materials
to be used in production.
Purchase Requisition Note – Form use to request for the
purchase to be made for stock of raw material
replenishment.
Purchase Order – Requesting supplier to supply orders
of materials.
Invoice – To charged and demand payment from the
company.
Goods Received Note – To acknowledge that goods are
received and checked against Purchase Order.
Inspection Note – Inspection made upon receiving
materials for quality and other specification.
2. Receipts - All goods received will be recorded in the
Stores Ledger Account by referring to the Goods Receive
Note.

3. Storage - To keep the material in a proper way before

issue the materials to production department. All the
materials will be recorded in a bin card.

4. Issuance - must be appropriately authorized and amount

issued recorded so that the appropriate charge can be
made to production or to the receiving cost center.
 3.3 PROCUREMENT
▪ Traditional method
Is a production-push basis where products are
made in large batches and move into stocks.
It will incur co-ordination and work flow problems,
bottlenecks, supplier unreliability.

▪ Just in Time (JIT)

The aim is to produce the required items, of high
quality, exactly at the time they are required.
The ultimate aim of JIT is to convert raw material to
finished goods with lead time equal to processing
time, thus eliminating all the non value added
activities.
▪ JIT Purchasing - seeks to match the usage of
materials with the delivery of materials from external
suppliers (material stocks can be kept at near zero
levels). To be effective, it require:
Confidence that suppliers will deliver exactly on
time.
The suppliers will deliver materials of 100%
quality so that there will be no rejects, returns and
consequent production delays.
Strong producer-supplier relationship.

▪ JIT Production - production only takes place where

there is actual customer demand for the product so
JIT works on a pull-through basis which means that
the product are not made to go into stock. It
concentrates on quality, reliability and integrated
deliveries not only price.
▪ Characteristics of Just in Time (JIT)
A move towards zero inventories.
Elimination of non-value added activities.
An emphasis on perfect quality i.e. zero defects.
Short set ups thus less cost.
A move towards a batch size of one.
Purchases are made in small batch size.
100% on time deliveries.
Frequent deliveries by suppliers.
Suppliers are required to inspect materials before
delivery.
A constant drive for improvement – common goals of
company.
Demand pull manufacture.
▪ Benefit of JIT
Lower investment required in all forms of inventory.
Space savings from the reduction in inventory and
improved layouts i.e. rent and insurance costs.
Greater customer satisfaction resulting from higher
quality better deliveries and greater product variety.
Can respond more quickly to market changes and be
able to satisfy market niches.
There is less likelihood of stock perishing, becoming
obsolete or out dated.
Less time is spent on checking and re-working the
product of others as the emphasis is on getting the
work right first time.
JIT has the potential to eliminate bottlenecks and
delays across the whole production cycle
▪ Disadvantages of JIT
There is little room for mistakes as minimal stock
is kept for re-working faulty product.
Production is very reliant on suppliers and if stock
is not delivered on time, the whole production
schedule can be delayed.
There is no spare finished product available to
meet unexpected orders, because all product is
made to meet actual orders – however, JIT is a
very responsive method of production.
▪ Implications of JIT
The production process must be shortened and
simplified. JIT system increases the variety and
complexity within work cells. Space savings from
the reduction in inventory and improved layouts.
JIT system requires quality awareness programs,
statistical checks on output quality and continual
worker training.
Factory layout must be changed to reduce
movement.
There must be full employee involvement.
 FACTORY LAYOUT
TRADITIONAL VS JIT PRODUCTION
 Centralized purchasing refers to the purchase of
materials by a single purchase department where
the purchasing department purchases the required
materials for all the departments and branches of
the company.

 Decentralized purchasing refers to purchasing

materials by all departments and branches
independently to fulfill their needs. This kind of
purchasing occurs when departments and branches
purchase separately and individually.
 CENTRALISED DECENTRALISED
• Bulk quantity of materials • Materials can be purchased
can be purchased at a low by each department locally
price with favorable as and when required.
purchasing terms. • Materials are purchased in
• The service of an efficient, right quantity of right quality
specialized and experienced for each department easily.
purchase executive can be • No heavy investment is
obtained. required initially.
• Better layout of stores is • Purchase orders can be
possible in centralized placed quickly.
stores. • The replacement of defective
• Economy in recording and materials takes little time.
systematic accounting of
materials.
 CENTRALISED DECENTRALISED
• Transportation costs can be
reduced because bulk quantity
of materials purchased.
• Centralized purchasing avoids
reckless purchases.
• Centralized purchasing
discourages duplication of
efforts.
• Centralized purchasing helps to
maintain uniformity in
purchasing policies.
• Centralized purchasing helps to
minimize the investment on
inventory.
 CENTRALISED DECENTRALISED
• High initial investment has to be • Organization losses the
made in purchasing. benefit of a bulk purchase.
• Delay in receiving materials • Specialized knowledge
from the centralized store by may be lacking in
other departments. purchasing staff.
• Centralized purchasing is not • There is a chance of over
suitable, if branches are located and under-purchasing of
at different geographical materials.
locations. • Fewer chances of effective
• In case of an emergency, control of materials.
materials cannot be purchased • Lack of proper co-
from local suppliers. operation and co-
• Defective materials cannot be ordination among various
replaced timely. departments.
3.4 STOCK INVESTMENT CONTROL
❖ The objective of stock control are:
▪ To minimize the costs associated with stock which are
ordering and carrying / holding cost.
▪ To avoid problem of overstocking and understocking.

❖ Reasons for Holding Large Amounts of Inventory:

To cope with uncertainties in customer demand and
production processes. The inventory acts as a buffer
against the possibility of running out of stocks.
To qualify for discounts available on large orders
To avoid future price increases in raw materials.
To avoid the costs associated with placing numerous
relatively small orders with suppliers.

❖ Effect of overstocking - Results in cash flow being

unnecessarily tied up and also stock could become
obsolete if it moves too slowly.
❖ Effect of understocking in a business:
Lost of sales opportunities and dissatisfied
customers.
Disrupt the smooth flow of production and
distribution
Ruin brand image
Shipping delays

❖ There are a few methods of maintaining stores

control:
Stock levels.
Economic Order Quantity (EOQ).
 STOCK LEVELS
Stock levels - How much a storekeeper will request will depend
on the levels below:
ROL = Max. Consumption X Max. Reorder Period
MIL = ROL – (Avg. Consumption X Avg. Reorder
Period)
MAL = ROL – (Min. Consumption X Min. Reorder
Period) + EOQ
Avg. stock level = (MIL + MAL)/2 or MIL + ½ EOQ

ROL is the level of inventory which triggers an action to replenish

that particular inventory stock.
Variables that need to be considered in setting the stock level:
Rate of consumption of materials
Lead time
Maximum requirement of the materials at any time
Nature of materials
Storage space and facility available
 EOQ
EOQ - represents the optimum order size which
minimizes the total of ordering and holding cost. The
higher the quantity we order each time, the fewer the
order we need to place in a year, which means that
ordering costs are reduced. On the other hand,
holding costs increase if we order large quantities
each time.
 Equation method
EOQ = √(2DO/C)
Where;
D = total ANNUAL demand
O = cost of placing or receiving order
C = the cost of carrying one unit of material

 EOQ Model is based on the following assumptions:

a) demand is constant
b) carrying and ordering costs are constant
c) unit price is constant
d) quick delivery
Ordering Costs (O):
✓ Clerical and administration costs of Purchasing, Accounting
and Goods reception
✓ Transport Costs

✓ Where goods are manufactured internally, the set up and

tooling costs associated with each production run plus
planning, production cost control associated with the internal
order

Carrying/ Holding Costs (H):

✓ Interest on capital invested in stocks

✓ Storage charges (rent, lighting, heating, refrigeration and air

conditioning)/warehouse
✓ Material handling costs

✓ Audit, stocktaking, stock recording costs

✓ Insurance and security

✓ Cost of obsolescence and deterioration of stocks

✓ Opportunity costs of investment in stocks

 Tabulation method
Demand (d)
Order Size (q) - units 1 2 3 4
No. of Orders (d/q) - times
Average Sock (q/2)
Total Carrying Cost (q/2 x C)
Total Ordering Cost (d/q x O)
Total Cost (Total Carrying + Ordering Cost)

 Graphical method
EXAMPLES ON STOCK LEVEL
FE MAR 2014
Deena Enterprise is a production company produces varieties of
school bags. One of its products is ROFINA BRO that uses a
component known as PVC 33. The production of ROFINA BRO is
between 500 to 600 units per week. Each unit of ROFINA BRO
requires 0.8kg of component PVC 33. Deena Enterprise usually
purchases 800kgs of PVC 33 at a time. The delivery period for
PVC 33 is between 1 to 3 weeks (There are 52 weeks per annum)

Required: Calculate ROL, MAL and MIL.

a) ROL = Max. Consumption X Max. Reorder Period

ROL = (600 units x 0.8 kg) x 3 weeks
ROL = 1,440 kgs.
b) MAL = ROL – (Min. Consumption X Min. Reorder Period) + EOQ
MAL = 1,440 kgs – ([500 x 0.8 kg] x 1 week) + 800 kgs
MAL = 1,840 kgs.

c) MIL = ROL – (Avg. Consumption X Avg. Reorder Period)

MIL = 1,440 kgs – ([500 + 600] x 0.8 kg x [1+ 3])
2 2

MIL = 560 kgs.

TIPS!
• Focus on material not finished products
• Reorder period @ lead time
• Consumption @ usage @ production
• EOQ @ re-order quantity
• Be careful with including and excluding
CT JAN 2016
Excel Sdn Bhd produces a vitamin named ExcelTonic. One of the
main ingredients in this product is magnesium. Each bottle of
ExcelTonic requires 200 grams of magnesium and the monthly
production of this vitamin is between 10,000 to 15,000 bottles.
The supplier usually takes 1 to 3 months to deliver the
magnesium after placing an order.

Currently, the price of the magnesium in the market is RM50 per

kg. Cost of ordering the magnesium is RM20 per order and
carriage expense is RM500 per order. While total of insurance,
security and storage costs for the magnesium are at 20% of the
cost of the inventory.

Required: Calculate EOQ, ROL, MAL and MIL

a) EOQ?
Annual demand = (10,000 + 15,000) x 0.2 kg x 12 months
2
= 30,000 kgs
Ordering cost = RM20 + RM500 → RM520
Holding/carrying cost = 20% x RM50 → RM10

EOQ = √ 2 x 30,000 x 520 → 1,766.35 kgs

10

b) ROL = Max. Consumption X Max. Reorder Period

ROL = (15,000 bottles x 0.2 kg) x 3 weeks
ROL = 9,000 kgs.
b) MAL = ROL – (Min. Consumption X Min. Reorder Period) + EOQ
MAL = 9,000 kgs – ([10,000 x 0.2 kg] x 1 week) + 1,766.35 kgs
MAL = 8,766.35 kgs.

c) MIL = ROL – (Avg. Consumption X Avg. Reorder Period)

MIL = 9,000 kgs – ([10,000 + 15,000] x 0.2 kg x [1+ 3])
2 2

MIL = 4,000 kgs.

TUTORIALS ON STOCK LEVEL
PAST YEAR
NO BUSINESS NAME REMARKS
QUESTION
1. CT FEB 2015 RIMBUNAN SDN BHD CALCULATE EOQ 1ST
2. CT FEB 2017 ABC SDN BHD 2 TYPES OF MATERIAL - EASY
3. CT MAY 2020 TEABOY BAKERY 2 TYPES OF MATERIAL - EASY
EOQ – CAREFUL WITH “WEEKLY
4. FE SEP 2015 PERIUK DAPUR SDN BHD
SALES”
5. FE OCT 2016 SINARAN SDN BHD CALCULATE EOQ 1ST
6. FE JUN 2018 ABC SDN BHD EASY
7. FE DEC 2019 SUPER CAKES SDN BHD EASY
8. CT MAY 2021 SS GLOBAL NETWORK EASY
9. FE JULY 2021 NASR SDN BHD CALCULATE EOQ 1ST
10. FE FEB 2023 KNITTA SDN BHD CALCULATE EOQ 1ST
11. FE JULY 2023 HAROOM HENNA SDN BHD EASY
 EXAMPLES ON EOQ
EQUATION/FORMULA & GRAPH
FE MAF220 SEP 2013

Hafidh is a young entrepreneur who has formed a business to

produce handmade chocolate. Currently, he placed an order of
100kgs cocoa powder twice a month. The demand for the cocoa
powder is 200kgs per month. One packet of chocolate needs
0.25kgs of cocoa powder.

The cost of placing an order is RM10 per order including the

clerical cost of preparing the purchase order. The supplier
charged Hafidh RM2 per order for the transportation of cocoa
powder.

The cocoa powder is kept in a small store. The storage cost is

RM4 per kgs which included the insurance and breakage cost of
RM0.30 and RM0.10 respectively
Required: Calculate the followings
a) EOQ
D = 200kgs x 12 months → 2,400 kgs.
O = RM10 + RM2 → RM12
C= → RM4

EOQ = √ 2 x 2,400 x 12 → 120kgs.

4

b) Total cost of EOQ = total carrying + ordering cost

= (q/2 x C) + (d/q x O)
= (120/2 x RM4) + (2,400/120 x RM12)
= RM480

c) How many packets of chocolate have been produce in one

month? 200kgs → 800 packet per month
0.25kg
d) The cost saving per year (if any) that could be made by using
EOQ instead of the current policy. Why Hafidh should change the
current order policy?
q = 100 x 2 → 200
TC = (200/2 x 4) + (2,400/200 x 12) =RM544

Hafidh should change to EOQ because there is a cost savings of

RM64 (544 – 480)
RM
e) Graph
TH
TC

TO

EOQ = 120 unit

 TABULATION – BASED ON NUM. OF ORDER (TIMES) @ NOT
CT AUG 2015 – ELITE BHD

Elite Bhd, a local manufactures assembles a product called Joy.

Each unit of Joy requires two kilograms of material AA. The
demand for product Joy is 2,000 units per month. The company
buys the material AA from a supplier at a purchase price of RM 20
per kilogram. The ordering cost of material AA is RM 15 per order.
The material then been kept in the store with the total storage
cost of RM 1 per kilogram (inclusive breakage cost of RM 0.30 per
kilogram)

Required:
a. Determine the demand per annum of material AA

D = 2,000 units x 12 months x 2kgs

D = 48,000 kgs.
 b. Tabulate a table for no of order of 20, 30, 40, and 50.
D = 48,000 kgs. FOLLOW THIS STEP
O = RM15
C = RM1
Demand (d) 2 48,000 48,000 48,000 48,000
Order Size (q) 3 2,400 1,600 1,200 960
No. of Orders (d/q) 1 20 30 40 50
Average Sock (q/2) 4 1,200 800 600 480
Total Carrying Cost (q/2 x RM1) 5 1,200 800 600 480
Total Ordering Cost (d/q x RM15) 6 300 450 600 750
Total Cost (Total Holding + Ordering Cost) 7 1,500 1,250 1,200 1,230

c. Based on your answer in (b), determine:

i. the economical quantity to order = 1,200 kgs.
ii. the number of order = 40 times.
iii. the total cost for the economic order quantity = RM1,200
 TABULATION – BASED ON ORDER SIZE (UNITS) @ OSU
CT MAY 2018

Khadijah Sdn Bhd is a distributor of cellular phones for the local market.
The demand for the product is expected to increase next period. To
generate an optimal supply of the product, the management realizes the
need to adopt an efficient stock control system. The following
information is available:
i. Expected demand for cellular phones is from 50 to 70 units per day.
ii. It has 200 working days per calendar year.
iii. The purchase price of each cellular phone is RM1,000.
iv. The ordering costs which also includes staffing cost incurred by the
purchasing department, will amount to RM100 per order.
v. The cellular phones manufacturer charges the company RM100 for
freight and forwarding per order.
vi. Additional warehouse space will have to be rented out for storing the
cellular phones at the rate of RM15 per unit.
vii. Breakage cost is estimated at 4% of the purchase price.
viii. Taxes and insurance on the inventory is RM5 per cellular phone.
Required:
a. Calculate annual demand, ordering and carrying cost.
D = (50 + 70)/2 x 200 days → 12,000
O = RM100 + RM100 → RM200
C = RM15 + (4% x RM1,000) + RM5 = RM60

b. Prepare a schedule with order sizes of 250, 300 and 400 units to
determine the Economic Order Quantity (EOQ).

Demand (d) 2 12,000 12,000 12,000

Order Size (q) 1 250 300 400
No. of Orders (d/q) 3 48 40 30
Average Sock (q/2) 4 125 150 200
Total Carrying Cost (q/2 x RM60) 5 7,500 9,000 12,000
Total Ordering Cost (d/q x RM200) 6 9,600 8,000 6,000
Total Cost (Total Holding + Ordering Cost) 7 17,100 17,000 18,000

From the table, EOQ is 300 units at a cost of RM17,000

TUTORIAL ON E0Q *No of Order – times → NOT
*Order size – units → OSU

NOF
EQUATION / FORMULA TABULATION
E
CT NOV 2017 - CENDANA INDAH
1. CT AUG 2016 - PERNIAGAAN EMANIS (NOT)
SDN BHD
FE MAC 2015 – DODOL MELAKA CT OCT 2018 - STAY HEALTHY SDN BHD
2.
SDN BHD (OSU)
FE MAC 2016 – ULTRA SPICES
3. CT APR 2019 - DS COMPANY (OSU)
MANUFACTURING
FE JUN 2019 – LALILO LACE SDN
4. CT OCT 2019 - ANISAH BAKERY (OSU)
BHD
5. FE JAN 2024 – HAFIDH SDN BHD FE SEPT 2014 – EZY SDN BHD (NOT)
6. FE MAC 2017 – LIP LOP TRADING (NOT)
7. FE JAN 2018 – SINAR ASU SDN BHD (OSU)
8. FE DEC 2018 – BOSSY SDN BHD (OSU)
9. FE FEB 2022 - GREEN HAND SDN BHD (OSU)
10. FE JULY 2022 – KOPI KITA CAFÉ (OSU)
 3.5 STORE KEEPING
It begins the moment the material received by the
storekeeper. The reasons why there must be an efficient
storekeeping are:
a) Too much stock is held would mean too much capital
is tied up unnecessarily and will increased storage
costs.
b) Too little stock will result in production hold-ups due
to insufficient stock.
c) The materials can be protected against pilferage or
deterioration as this may result in losses.
d) Materials can be received and issued speedily so that
production is not held up.
e) Material can be located speedily.
f) Material can be identified speedily.
 Store keeping includes the following activities:
◦ Receipts of materials from Reception & Production
◦ Organizing storage in logical sequences, thus
ensuring items can be found speedily, precisely
identified and storage space is used efficiently
◦ Organizing stock checks to provide accurate stock
figures when required
◦ Protecting items in store from damage &
deterioration
◦ Securing the stores from pilfering, theft & fire
CENTRALISED & DECENTRALISED
STOREKEEPING SYSTEM

A centralized store is that store which receives

materials for and issues them to all departments,
divisions and production floors of the company. The
materials required for all the departments and
branches are stored and issued by only one store.

A decentralized store is that type of store which

receives materials for and issues them to only one
department and not to the whole company. The
decentralized store may be in many numbers in the
company, as each department has its own such store.
Purchasing and handling of materials are undertaken
by each and every department separately.
 ADVANTAGES DISADVANTAGES
•A better supervision of store is •Delay in sending materials to the
possible because the store is departments and branches.
located under a single supervision. •Increase in material handling
•A better layout of store and its cost.
control are possible. •Greater risk of loss by fire.
•Less space is occupied. •Not suitable for a large company.
•Investment in stock is minimized.
•It is economical for storing
materials.
•Safety of materials is possible
according to the nature of
materials.
•Trained and specialized persons
can be appointed.
•Wastage of materials can be
minimized.
 ADVANTAGES DISADVANTAGES
•Controlling and storing function •Higher cost of supervision.
can be accomplished easily. •More space is required for
•Delay in material handling will be individual departments.
eliminated. •Higher amount of investment is
•Minimizes the chances of loss by required.
fire. •More time for stock taking and
•No need of internal taking.
transportation costs. •Higher cost of staff and
•Specific needs of individual stationary.
departments can be easily fulfilled. •Improved technique is less
•Saving in material handling cost. possible for controlling of
materials.
 3.6 STOCK TAKE
Perpetual inventory system
This system is usually used by firms selling goods that
have high individual unit value such as motor vehicles
and furniture.
Updates inventory accounts after each purchase or
sale.
Inventory quantities are updated continuously

Continuous Stock Taking

Quantity counted being checked against the
appropriate perpetual inventory balance figure
Stocks in stores are checked and counted physically
by an independent personnel who does not work in the
store as a storekeeper.
Not all stocks in stores are counted. Before counting
session begin, sample of stocks are randomly chosen.
Advantages of continuous stocktaking:-
Stocks are regularly checked therefore the stocks
figures are more accurate.
Stock discrepancy or loss can be identified faster.
Stocks counting by the independent personnel will
ensure integrity of materials in stores and a higher
quality job done.

Periodic inventory system

Recording are done by doing stock taking on a periodic
basis, at the end of each accounting period (e.g.,
monthly, quarterly).
Inventory quantities are not updated continuously.
A ‘cut-off’ time should be set where there is no
movement of stock is allowed until the count has been
completed.
 Stock discrepancies - occurs when stock checks
disclose discrepancies between the physical
quantity/amount in the store and the quantity/amount
shown in the stock records. Possible causes is due to:
✓Suppliers deliver stocks in different quantity as shown
on the Good Received Notes.
✓Excess stocks from the production department are
returned to store without proper documentation. The
material returned note or store credit note should be
raised for the excess materials returned.
✓The physical quantity of stock issued to production
from stores is different from what have recorded or
shown on the material requisition note.
✓Breakages in stores are not recorded.
✓Stocks stolen by the employees (pilferage/theft).
✓Clerical errors in the stock records.
Example of clerical errors:
Errors in weighing, counting or measuring.
Part number errors.
Omitting whole groups of stock or including
more than one.
Calculating errors on stock sheets.
Poor writing, illegible figures causing
misreading.
 3.7 ISSUANCE OF STOCK &
METHODS OF STOCK VALUATION
When materials are issued to production, the issues must be
valued or priced. This is important because it will affect the cost
of the product produced by the production department.

The problem of pricing material issues is thus to determine

product costs. There are several factors which will influence it:-
Rapid changes in prices of material bought and its
components.
Stock received usually comes from several deliveries, therefore
the materials prices may be at different prices.
Consequently, it is difficult to identify items or materials from
their delivery consignment.
With different pricing method adopted, will give different profit
figure especially in the situation where materials form a large

FIFO WAM
part of total cost.
 FIFO
 FIFO means that the first good purchased, will be
first to be issued (chronological order).
 Therefore, material issued to production will be at a
lower price, will result in a low production cost and
lower cost of sales (COGS) and therefore higher
profit. (Considering inflation where price of material
is increasing).
 Advantages:
❖ It is simple and easy to understand.
❖ Logical pricing represent the actual physical flow.
❖ Closing stock tends to be value at cost
approximating to current market value.
❖ Acceptable by Inland Revenue Board.
 FIFO
 Disadvantages:
❖ The stocks are valued at cost, therefore when
material prices fluctuate, there may huge
difference in the price at which material is charged
to production.
❖ Material issued on the same day may be priced at
two different prices.
 WAM
Under this method it is assumes that materials are
issued at the average cost of materials in stock.

Advantages of WAM method is that in the situation

of purchase price of material constantly fluctuate,
the average price method is likely to give more
satisfactory results than LIFO or FIFO as it will tend
to even out the price fluctuations.
 Price of Closing
COGS Profit
materials Inventory
Increased LOW HIGH HIGH

Decreased HIGH LOW LOW

Requirement:
1. Prepare a store ledger card based on method that will value its
closing inventory at a latest price.
2. Prepare a store ledger card using a method that would result in
the lowest COGS charged to production.
3. Outline the transaction in store ledger card if the objective is to
show highest profit.
EXAMPLES OF FIFO METHOD
CT FEB 2015
Instead of “CBH Compound No.33”, Rimbunan Sdn Bhd also sells “Organic
Compound ABX” which is bought from Thailand. The following transactions are
the information relating to the movement of stock of “Organic Compound ABX”
for the month of January 2015:

IGNORE
SELLING
PRICE
 DATE RECEIPTS ISSUES BALANCE
JAN UNITS CPU TOTAL UNITS CPU TOTAL UNITS CPU TOTAL

1 BAL. B/D minus 7,200 4 28,800

3 2,200 4 8,800 5,000 4 20,000

12 5,000 4 20,000 - - -
17 3,800 4.20 15,960 3,800 4.20 15,960
18 R.OUTWARD 500 4.20 2,100 3,300 4.20 13,860
21 2,000 4.20 8,400 1,300 4.20 5,460
23 (RI) 100 4.20 420 420 1,400 4.20 5,880
24 1,500 4.70 7,050 1,400 4.20 5,880
1,500 4.70 7,050
27 1,000 4.20 4,200 400 4.20 1,680
1,500 4.70 7,050
31 Stock loss 200 4.20 840 200 4.20 840
1,500 4.70 7,050
31 Closing stock 1,700 7,890

b) Closing stock is 1,700 units at RM7,890.

c) Total cost of material issued = RM41,400 (excluding return & loss)

 EXAMPLES OF WAM
Illustration

The following are records of receipt and issues material in ABC

Enterprise for the month of June 2009.

1/6/09 - Received 200 kg at RM1.00 per kg.

5/6/09 - Received 400 kg at RM1.30 per kg
12/6/09 - Issued 300 kg
15/6/09 - Received 500 kg at RM1.50 per kg
19/6/09 - Received 300 kg at RM1.80 per kg
24/6/09 - Received 100 kg at RM2.20 per kg
27/6/09 - Issued 700 kg
30/6/09 - Issued 250 kg.
Date Receipts Issues Balance Average Price
June Units RM Total Units RM Total Units RM Total Total/Units
RM RM RM RM RM RM RM
1 200 1.00 200 200 1.00 200 200/200= 1.00

5 400 1.30 520 600 720 720/600= 1.20

12 300 1.20 360 300 1.20 360

15 500 1.50 750 800 1,110

19 300 1.80 540 1,100 1,650

24 100 2.20 220 1,200 1,870 1,870/1200=1.56

27 700 1.56 1,092 500 778

30 250 1.56 390 250 388

Cost of sales (360 + 1,092 + 390) = 1,842

Closing stocks 250 units and RM388
 TUTORIAL ON STOCK
VALUATION
NO PYQ

1. CT JAN 2016 – SERI WANGI ENTERPRISE FIFO

2. CT FEB 2017 – ALIDA SDN BHD FIFO

3. FE MAC 2015 – WAFFY MANUFACTURER FIFO

4. FE DEC 2018 – FLORA SDN BHD FIFO

5. FA AUG 2020 – SIMKAD SDN BHD FIFO

6. CT MAY 2021 – AU BERHAD FIFO

7. FE JULY 2021 – HUDA SDN BHD FIFO

8. CT DEC 2021 – AWESOME BHD WAM

FE FEB 2022, JUL 2022, FEB 2023, JUL 2023, JAN 2024 FIFO