Pricing of Material- Simple and Weighted Average Method

 (1) Simple Average Method: 

Under this method, price of issue materials is determined by dividing the total of the prices of the materials in stock, i.e., adding of different prices by the number of different prices. Then, this average price is applied to the issues to production. This method is simple and easy to operate. The value of closing stock becomes unrealistic.

Issue Price = (Total of Unit Prices of Materials in Stock)/ Number of Prices

From the following prepare stores ledger account using Simple Average Method for the month of January 2022: 

January 1 Opening balance 500 units at Rs. 2 per unit 
3 Issued 100 units 4 Issued 100 units 
8 Issued 100 units 
13 Purchased 400 units at Rs. 3 per unit 
14 Purchased 200 units at Re. 1 per unit 
16 Issued 150 units 
20 Purchased 400 units at Rs. 4 Per unit 
24 Issued 250 units 
25 Purchased 500 units at Rs. 5 per unit 
26 Issued 300 units 
28 Purchased 200 units at Rs. 2 per unit 
31 Purchased 200 units at Rs. 4 per unit


(2) Weighted Average Method: Under this method, the price of materials issue is determined by dividing the total cost of materials in stock by the total quantity of material in stock. Here weighted average rate is calculated based on both quantity and price of the materials in stock. As more issues are made, a new average rate is computed and this average rate is applied to the subsequent issues

Weighted Average Price-Value of Materials in Stock/Quantity in Stock

From the following particulars, prepare stores Ledger Account on weight Average basis: 2021 March 
I Opening balance 200 units at Rs. 2 per unit 
10 Purchased 300 units at Rs. 2.40 per unit 
15 Issued 250 units 
18 Purchased 250 units at Rs. 2.60 per unit 2
0 Issued 200 units 
25Purchased 300 units at Rs. 2.50 per unit 
31Purchased 100 units at Rs. 2 per unit

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