(I) What do you meant by material codification. [2] (II) Inventories position of a company of last month are given below : Chaitra 1: Opening inventory 650 units@ Rs. 8 Chaitra 6: Purchase 500…

(I) Meaning of Material Codification

Material codification refers to the systematic process of assigning unique identification codes (codes) to different types of materials, goods, or inventory items in an organization. These codes help in:

• Easy identification and classification of materials.
• Simplifying record-keeping in accounting and inventory management.
• Efficient tracking of stock movements, purchases, and sales.
• Preventing confusion among similar items by using standardized codes.

For example, a company may use alphanumeric codes like "STL-001" for steel rods, "CBL-002" for cables, or "PAP-003" for paper. This system ensures smooth operations in inventory control, cost accounting, and financial reporting.

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(II) Cost of Goods Sold (COGS) and Closing Stock under FIFO Method

Given Data:

• Opening Inventory (Chaitra 1): 650 units @ Rs. 8
• Purchase (Chaitra 6): 500 units @ Rs. 9
• Purchase (Chaitra 15): 800 units @ Rs. 10
• Closing Inventory (Physical Count): 550 units

Step 1: Calculate Total Units Available for Sale

$$\text{Total Units}=\text{Opening Inventory}+\text{Purchase (Chaitra 6)}+\text{Purchase (Chaitra 15)}$$ $$=650+500+800=1,950\text{ units}$$

Step 2: Determine Units Sold (COGS)

$$\text{Units Sold}=\text{Total Units}-\text{Closing Inventory}$$ $$=1,950-550=1,400\text{ units}$$

Step 3: Apply FIFO (First-In-First-Out) Method

Under FIFO, the oldest inventory is sold first. The cost of goods sold is calculated by allocating costs in the order of purchases:

1. First, sell 650 units from Opening Inventory (Rs. 8 per unit): $$650\times 8=\text{Rs. }5,200$$

2. Next, sell 500 units from Purchase (Chaitra 6) (Rs. 9 per unit): $$500\times 9=\text{Rs. }4,500$$

3. Remaining units sold (1,400 - 650 - 500 = 250 units) come from Purchase (Chaitra 15) (Rs. 10 per unit): $$250\times 10=\text{Rs. }2,500$$

4. Total Cost of Goods Sold (COGS): $$5,200+4,500+2,500=\text{Rs. }12,200$$

Step 4: Calculate Closing Stock (550 units)

The remaining 550 units consist of:

• First 800 units from Purchase (Chaitra 15) (Rs. 10 per unit): $$550\times 10=\text{Rs. }5,500$$ (Note: Since only 250 units were sold from this batch, the remaining 550 units are entirely from the latest purchase.)

Final Answer:

• Cost of Goods Sold (FIFO): Rs. 12,200
• Cost of Closing Stock (FIFO): Rs. 5,500