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
Where P = Price, n = number of units of price
Illustration 3
Calculate the value of closing stock from the following information under average price method
Purchase |
Units |
â‚¹ |
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 |
No. of units in stock = 300 units (purchases - issues)
Value of closing stock = No. of units in stock X Average price
= 300 X â‚¹ 5.5
= â‚¹ 1,650/-