What is Meaning of NIFO Method, Advantages, Disadvantages

What is Meaning of NIFO (Next-in-first-out) Method

Under Next-in-first-out (NIFO) method, the issues are priced at the purchased rates of materials which are yet to arrive In simple words, the material rates which have been agreed upon by the supplier is used for issue purpose, though materials are not physically received.

In Meaning of NIFO Method material are issued at the price at which a new order has been placed and this price will hold good for all future issues until a next order is places As this method is somewhat complicated it is not normally adopted.

This NIFO method can be exploded with the help of an example, Suppose. in stock there are two batches of materials, one at Rs 45 and the other at Rs. 46.

There is a further batch of materials on order at Rs 48.50 which has not yet been received. If materials were to be issued now, these will be charged at Rs 48 50 The main argument in favor of this method is that this is a more up-to date replacement price than under LIFO method.

NIFO Full Form – Next-in-first-out

Advantages of NIFO

The chief advantage of this method is that, under this production method, the materials cost charged  to production comes very close to current market price.

Disadvantages of NIFO

The chief drawbacks of this method are.

1. Under this method calculations become difficult.

2. This method becomes impracticable, when the price of the consignment ordered at the time of issue but not yet received is not known in advance.

3. Difficulty may also arise if the committed price of the next consignment ordered at the time of the issue, but not yet received is changed later at the time of actual delivery and payment for some reason or the other.

Suitability –  This method is no doubt, a forward looking method. But it becomes impracticable in many cases, so it is rarely in use.

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