Costing Methods

Abstract

In Chapter 7 some of the problems associated with valuing a firm’s resources used during an accounting period, or held at the end of the period, were introduced. The discussion concentrated mainly on the alternative bases which can be used in the valuation of identical goods which are purchased at different prices. The main difference between the bases — such as FIFO, LIFO and average cost — related to the time period in which a specific purchase cost is expensed as cost of sales. The assumption was made that no processes were involved in holding and/or preparing the goods for sale — i.e., we were using the retail industry as a basis for our discussion. In Chapter 8 we drop that assumption and extend the discussion to cover the additional measurement problems which arise in organisations which incur a range of different costs in making goods ready for sale — e.g., manufacturing organisations which have to value the full range of stock introduced in Chapter 7 (i.e., raw material, work in progress and finished goods).