Question

Advantages of weighted average method of valuation of inventory

Answer 1

Answer:

Advantage of weighted average method

Advantage of weighted average costing method are as under: The weighted average method minimizes the effect of unusual high and-low material prices. The weighted average method is practical and suitable for charging cost of material used to production.

Answer 2

ANSWER :

➯ Advantages of weighted average method of inventory valuation are :

• (1) • The weighted average method averages out the effect of widely varying prices of different quantities of materials in stock.

• (2) • The weighted average method is simple because the issue price once calculated continues to ve the issue price till new materials are purchased.

• (3) • This method is considered as the most appropriate menthod of inventory valuation which prices fluctuates considerably.

• (4) • This menthod is recommended by the relevant accounting standard, hence may be applied easily.

• (5) • Under this method, inventory at the end represents the average cost price of materials in hand.

• (6) • This menthod of inventory valuation minimizes the effect of unusual high and-low material prices.

• (7) • Due to use of average prices, comparison between profits of different periods becomes easier and realistic in this method.

MORE INFORMATION :

➯ WEIGHTED AVERAGE METHOD :

Weighted average method is an important and appropriate method of inventory valuation. In this method, for determining the issue price, both the quantity of materials available in the stock and the price of the materials are considered.

The weighted average proce is calculated by dividing the total cose of available materials on the date of issue by the total quantity of available materials in stock.

➯ FORMULA FOR CALCULATING WEIGHTED AVERAGE PRICE :

$\sf{ \: Weighted \: \: Average \: \: Price = \frac{Total \: \: Cost \: \: of \: \: Materials \: \: in \: \: Stock}{ \: Total \: \: Quantity \: \: of \: \: Materials \: \: in \: \: Stock \: }}$