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Simple Average Price Method

Simple Average price for computing the value of closing stock is a very simple approach. Under this method, various prices are added and then divided by the number of items (no. of units of price) to get the simple average price.

 

The closing stock quantity is then multiplied with such an average price to determine the value of closing stock. This method averages out the effect of price fluctuations

 

Description: 26130.jpg 

Where P = Price, n = number of units of price

 

 

Description: 26175.jpg 

Illustration 3

 

Calculate the value of closing stock from the following information under average price method

 

Purchase

Units

01-01-2012

500

5.00

05-01-2012

1,000

5.50

10-01-2012

300

6.00

Total units

1,800

 


Solution:

 

Issues

Units

04-01-2012

400

12-01-2012

1,100

 

1,500


Description: 26251.png

No. of units in stock = 300 units (purchases - issues)

 

Value of closing stock = No. of units in stock X Average price

 

= 300 X ₹ 5.5

 

= ₹ 1,650/-





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