Q.How are stocks valued under cost accounting?

FIFO is suitable in times of falling prices — option (b).

FIFO (First-In-First-Out) issues material at the price of the earliest lot purchased. In a period of FALLING prices the earliest lots carry the highest prices, so:

• Issues to production are priced at the older, higher rates.
• Closing stock is left valued at the newer, lower (current) prices — a conservative, realistic stock value. …

LIFO suits a period of rising prices because it charges the latest (higher) cost to production — option (c).

How LIFO behaves as prices move

FIFO is conventionally said to be suitable when prices are falling.

Under First-In-First-Out, materials are issued at the price of the earliest lot in stock. When purchase prices are falling over time, issues carry the older (higher) prices and the closing stock is left valued at the most recent (lower) prices — the usual textbook justification for recommending FIFO in a period of declining …

Issues of material are valued by the (a) Costing department.

The stores department physically receives and issues materials and keeps the bin card (quantities only). The costing (cost accounting) department maintains the priced stores ledger and applies the chosen pricing method (FIFO, weighted average, etc.) to value each issue. Hence the valuation …