Meaning of Weighted Average Price Method
This methods gives due weight to the quantities held at each price when calculating the average price Under this method the issue price is calculated by dividing the value of materials in hand by the number of units in hand.
The average price to be charge to issue will continue to be the same until a new purchase is made which will necessitate computation of new average This method is more scientific than the simple average method.
It also reduces the number of calculations to be made as the old overage will continue till freest supply of material is obtained. It is frequently used and under normal circumstances gives the best result.
But under this system on account of approximation being used while calculating the average price, a profit or loss on issue of materials may arise.
Advantage of Weighted Average Price Method
The chief advantages of Weighted Average Price Method are-
1. This method recovers the cost of the materials from total production.
2. It is quite suitable for the pricing of materials subject to wide price fluctuations .
3. It evens out sharp fluctuations in prices of materials.
4. As all jobs or works are charged at the average price, comparison of similar jobs becomes easy and reliable .
5. It is easy to operate, in the sense that a new issue price is to be calculated only when a new purchase is made and not at the time of every issue.
6. Under this method, the closing stock represent fair value.
7. This method gives more accurate results than the simple average price method, as it takes into accounts both the unit prices and the quantities of different materials purchases.
Disadvantages of Weighted Average Price Method
This method suffers from the following disadvantage –
1. The average price is required to be calculated to four or five decimal places, if accuracy is required, this makes the calculations tedious.
2. As the issues are not priced at actual cost. there may be profit or loss on the issue of materials. 3 Under this method, the closing stock does not represent current market value.
Inspire of the above drawbacks, this method is, generally, considered to be the best for pricing the issues of materials which are subject to wide fluctuations.
- Cost Accounting | Purpose or Functions of Cost Accounting
- Advantages and Disadvantages of Cost Accounting
- Difference between Cost Accounting and Management Accounting
- What is Cost Concepts and Different Terms of Costs
- What is concept of Cost Audit | Objective and Scope of Cost Audit
- Advantages and Disadvantages of Cost Audit
- Meaning of Methods of Cost | Basic Methods of Costing
- What is meaning of Classification of Cost & elements of Cost | rules of Cost Accounting Standard
- What is Installation of a Costing System | Conditions and Factors
- What are the practical difficulties in installing cost accounting
- What is technique of Costing | Various techniques of Costing
- What is Material or Inventory Control | Techniques of Materials Control
- What is FIFO Method | advantages and disadvantages
- What is LIFO method | Advantages and Disadvantages
- What is Periodical or Annual Inventory Control System | Limitations
- Methods of Pricing Material Issues | Cost Methods
- What is Cost of Labour Turnover | Causes, Effects Classification
- What is meant by idle time | Definition, Causes, Control
- What is meaning of overtime work | Reason, Disadvantages
- HIFO method of inventory valuation |Advantages, Disadvantages
- What is two Bin System | Meaning of Bin Card and Specimen
- What is Meaning of NIFO Method | Advantages, Disadvantages
- What is Market Price Method or Replacement Price Method | Advantages, Disadvantages
- What is average cost method of Inventory valuation | Advantages and Disadvantages
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