B.Com Notes

What is Meaning of Weighted Average Price Method | Advantages and Disadvantages

Meaning of Weighted Average Price Method
Meaning of Weighted Average Price Method

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.

Also Read – What is average cost method of Inventory valuation | Advantages and Disadvantages

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.

Also Read – What is Meaning of NIFO Method | Advantages, Disadvantages

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.

Also Read – What is meant by idle time | Definition, Causes, Control

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.


Also Read – What is Periodical or Annual Inventory Control System | Limitations

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.

Related Links


Disclaimerwww.efullform.in does not own this book, PDF Materials Images, neither created nor scanned. We just provide the Images and PDF links already available on the internet. If any way it violates the law or has any issues then kindly mail us;

About the author


Leave a Comment