Simple and Weighted Average - Material Issues

 Stores Ledger – Material Issue Pricing Methods

When materials are purchased at different prices, the Stores Ledger needs a method to determine the price at which materials issued to production are valued. Two important methods are:

1. Simple Average Price Method
2. Weighted Average Price Method

1. Simple Average Price Method

Meaning

Under the Simple Average Price Method, the issue price is calculated by taking the arithmetic average of the different purchase prices, without considering the quantities purchased at each price.

Formula

Procedure

Step 1: Identify all the different prices available in stock.

Step 2: Add the prices.

Step 3: Divide the total by the number of prices.

Step 4: Use the resulting average price to value the material issue.

2. Weighted Average Price Method

Meaning

Under the Weighted Average Price Method, the issue price is calculated by considering both the quantity and price of materials available in stock.

It therefore gives greater importance to the price at which a larger quantity has been purchased.

Formula

Problem – simple & Weighted Average

The following transaction took place in respect of an item of material :

Date	Receipt Quantity	Rate	Issue Quantity
2-9-1998	200	2.00
10-09-1998	300	2.40
15-09-1998			250
18-09-1998	250	2.60
20-09-1998			200

 

Record the above transactions in the Stores Ledger, pricing the issues at:

a)      Simple Average rate                      b) Weighted Average rate

SOLUTIONS

1.Simple Average Method

STORES LEGER

SIMPLE AVERAGE METHOD

DATE	DETAIL	RECEIPTS			ISSUES			BALANCE
2-9-98	GRN No	200	2.00	400	---	---	---	200	400
10-9-98	GRN..No	300	2.40	720	---	---	---	500	1,120
15-9-98	RS No….	----	----	----	250	2.20*	550	250	570
18-9-98	GRN No….	250	2.60	650	----	----	----	500	1,220
20-9-98	RS No….	----	----	----	200	2.50*	500	300	720

 

 2.Weighted Average Method

STORES LEGER

WEIGHTED AVERAGE METHOD

DATE	DETAIL	RECEIPTS			ISSUES			BALANCE
2-9-98	GRN No	200	2.00	400	---	---	---	200	400
10-9-98	GRN..No	300	2.40	720	---	---	---	500	1,120
15-9-98	RS No….	----	----	----	250	2.24	560	250	560
18-9-98	GRN No….	250	2.60	650	----	----	----	500	1,220
20-9-98	RS No….	----	----	----	200	2..42*	484	300	636