Stock in the sense used here may cover stock of raw materials, loose tools, brought-out goods, finished parts, partly made goods and work in progress.

So far as raw materials are concerned, the generally accepted method of valuing stock is on the basis of cost or market value, whichever is the lower. Neither cost nor net realisable value is in all cases easy to ascertain, and numerous problems arise with regard to valuations. Whatever may be the precise method of valuation adopted, the essential principle of consistency must be emphasised, so that the same method must be used at the end of each period.

The problem of valuing bought-out goods, including loose tools, is usually much more simple of solution, since it is usually practicable to find the price paid for each individual item.
Where, however, articles have been fabricated by the business both the ascertainment of cost and market price involve the use of certain conventions.

Where finished goods have been made and are ready for sale the market price will usually be higher than the cost. The latter figure should therefore be used, otherwise the profit included in the market price will have been anticipated.

In a business where no form of unit costing is undertaken the value of finished goods can be calculated by deducting average or estimated profit from the market price. This method may be dangerous in unskilled hands, but with proper safeguards against inaccuracy is a quick and economical aid to drawing up interim accounts without undertaking the work, expense and possible delays of a complete stock-taking.

Where unit costs are available, however, the direct or variable costs of labor, material and direct expenses may be applied to the stock of finished and partly finished goods.

The cost of production does not, however, rest with direct or variable costs. It is usually considered proper to add at least a proportion of the overheads of the concerrn. The overheads must in the long run be covered by the sales if the business is to continue. Furthermore, it is pertinent to mention that in calculating profits for income-tax purposes the value of stock should include overheads, although the method of accounting for tax may well be different from those shown in accounts.
In view of the fact that the amount  of fixed costs applicable to each sale depends on the volume of turnover in a particular period, it is usually considered unwise in valuing stocks to add to variable costs any other overheads than those relating to the factory. Thus, strictly semi-variable costs, such as indirect wages, material factory indirect expenses, may be apportioned to products for the purpose of valuing stocks of finished goods and work in progress. Many companies also include in the calculation of the works overhead rate applied to products the fixed overheads applicable to the manufacturing function, but it is desirable that the amount of fixed overheads thus applied to product costs shall be at a standard rate based on the achievement of a reasonable level of activity.

It is necessary to note that considerable variations in the methods of valuing such stocks exist in practice. The principle of consistency must, however, be emphasised again.