COST ACCOUNTING

UNIT 2 - METHODS OF PRICING MATERIAL ISSUES

1. WEIGHTED AVERAGE METHOD

This method gives due weight to the qualities held at each price when calculating the average price. The
weighted average price is calculated by dividing the total cost of material in stock from which the
material to be priced could have been drawn. by that total quantity of material in that stock. The simple
formula is that weighted average price at any time is the balance value figure divided by the balance
units figure.

This method gives due importance on quantities received. Issues prices are calculated at the average
cost price of materials in mind. Weighted average is calculated each time a fresh lot is received. Average
price remains the same till the next issue is received. This issue prices are derived at the time of receipt
not at the time of issues.

FORMAT
Stores Ledger Account – WEIGHTED AVERAGE METHOD

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Amt
Rs. Rs. Rs.
(Rs) (Rs) (Rs)

Problems
1. The following transaction occur in the purchase and issue of a material:
Jan 2 Purchased 4000 units @ Rs 4.00 per unit
20 Purchased 500 units @ Rs. 5.00 per unit
Feb 5 Issued 2000 units
10 Purchased 6000 units @ Rs 6.00 per unit
12 Issued 4000 units
March 2 Issued 1000 units
5 Issued 2000 units
15 Purchased 4500 units @ Rs 5.50 per unit
20 Issued 3000 units
From the above, prepare the stores ledger account using Weighted Average Method.

1 Professor Sogara BI
Head, Department of Commerce(UG)
Krupanidhi Degree College
 Solution:

Stores Ledger Account – Weighted Average Method

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Amt
(Rs) Rs. Rs.
(units) (Rs) (units) (Rs) (units) (Rs)
2nd Jan 4,000 4.00 16,000 - - - 4,000 4.00 16,000

20 Jan 500 5.00 2,500 - - - 4,500 4.111 18,500

Feb 5 - - - 2,000 4.111 8,222 2,500 4.111 10,278
Feb 10
6,000 6.00 36,000 - - - 8,500 5.445 46,278

Feb 12 - - - 4,000 5.445 21,780 4500 5.445 24,498

Mar 2 - - - 1,000 5.445 5445 3500 5.445 19,053
Mar 5
- - - 2,000 5.445 10,890 1,500 5.445 8,163
Mar 15 4,500 5.50 24,750 - - - 6,000 5.486 32,913
Mar 20 - - - 3,000 5.486 16,458 3,000 5.486 16,455

Closing Stock = 3,000 units = Rs 16,455

Working Notes:

20/1 = Total cost of materials = 18,500 = Rs 4.111

Total Quantity of materials(UNITS) 4,500
Feb 10 = 46278 = Rs 5.445
8,500
Mar 15 = 32,913 = Rs 5.486
6,000

2. Prepare Weighted Average Price Method:

Date Receipts Rate Units Issues
1/3/2016 20 units 25 -
9/3/2016 30 units 30 -
20/3/2016 - - 5 units
24/3/2016 40 units 32 -
26/3/2016 - - 30 units

2 Professor Sogara BI
Head, Department of Commerce(UG)
Krupanidhi Degree College
 STORES LEDGER ACCOUNT - Weighted Average Method

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Rs. Amt
Rs. Rs.
(Rs) (Rs) (Rs)
1.3.2016 20 25 500 - - - 20 25 500
9.3.2016 30 30 900 - - - 50 28 1,400
20.3.2016 - - - 5 28 140 45 28 1260
24.3.2016 40 32 1280 - - - 85 29.88 2,540
26/3/2016 - - - 30 29.88 896.40 55 29.88 1643.60
Closing Stock = 55units = 1643.60

Working Notes:

9/3 = Total cost of materials = 1400 = Rs 28

Total Quantity of materials(UNITS) 50
24/3 = 2540 = 29.88
85
3. Prepare Weighted Average Price Method:
Date Receipts(QTY) Rate Units Issues
2/3/2016 200 units 2.00 -
10/3/2016 300 units 2.40 -
15/3/2016 - - 250 units
18/3/2016 250 units 2.60 -
20/3/2016 - - 200 units
STORES LEDGER ACCOUNT - Weighted Average Method

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Rs. Amt
Rs. Rs.
(Rs) (Rs) (Rs)
2.3.2016 200 2.00 400 - - - 200 2.00 400
10.3.2016 300 2.40 720 - - - 500 2.24 1120
15.3.2016 - - - 250 2.24 560 250 2.24 560
18.3.2016 250 2.60 650 - - - 500 2.42 1210
26/3/2016 - - - 200 2.42 484 300 2.42 726

3 Professor Sogara BI
Head, Department of Commerce(UG)
Krupanidhi Degree College
Closing Stock = 300units = 726

Working Notes:

10/3 = Total cost of materials = 1120 = Rs 2.24

Total Quantity of materials(UNITS) 500
18/3 = 1210 = 2.42
500

4 Professor Sogara BI
Head, Department of Commerce(UG)
Krupanidhi Degree College