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Periodic Simple Average Method, Periodic Weighted Average Method Homework Help, Tutoring
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Periodic Simple Average Method

     Periodic simple average method is a little deviation from the simple average method. In this case, the periodic simple average rate is obtained by adding the rates of purchases during a given period & then dividing the same by the number of such purchases during that period. In the calculation of periodic simple average rate, the value of opening stock is not considered as the opening stock represents last period’s purchase.

Advantages:

     The advantages of simple average method are applicable in this case also with some extra advantages:

(a) Since during the period, one rate is calculated for application to all issues, whenever a new purchase comes, new calculation is avoided.
(b) Charges during a period are made at uniform rates.

Disadvantages:

     In case of periodic simple average method also, the disadvantages of simple average method are generally applicable with the additional disadvantage that, for the purpose of calculation of the periodic simple average rate, the entire work of charging the issues has to be kept suspended till the end of the period. Sometimes, to remove this difficulty, the previous period’s rate is applied in the current period.

Periodic Weighted Average Method:

      In this case, for application in respect of all issues during a period, one weighted average rate is calculated, after taking the quantities & corresponding rates of purchase during the same period into consideration. Since opening stock value represents last period’s purchase, it is not considered. However, closing stock of the period is valued at this periodic weighted average rate. Some of the disadvantages of weighted average method, like frequent calculation of rates of issue, charging of issues at different rates in the same period etc are avoided by this method.

Suspension of all work of charging the issues till the end of the period is required by the periodic weighted average method.
The periodic weighted average method, with the exception to the above, enjoys the same advantages & suffers from the same disadvantages of the weighted average method.

           
Illustration 6: On the basis of information given in Illustration 5, prepare a stores ledger account under periodic simple average method. 

Workings: (1) Periodic simple average price = (2.00+2.10+2.20+2.50)/4 = $ 2.20             
                   (2) Total price of issues = 2800*2.20 = $ 6160
                   (3) Value of closing stock = $ (8240-6160) = $ 2080
(4) In the calculation of periodic average, the price of opening stock, if any,        should be excluded.               
                       
Illustration 7:

On the basis of information given in Illustration 5, prepare a stores ledger account under periodic weighted average method.

Workings: (1) Periodic weighted average price = 8240/3800 = $ 2.1684
                   (2) Valuation of closing stock = $ (8240 – 6072) = $ 2168

1(C)(iv) Moving Average Method:

      Under this method the moving average rate is obtained by dividing the total of the periodic average rates of a selected number of periods by the number of such periods. The periods selected are including & preceding the period in which the materials which are to be priced are issued. The selected periods are called ‘average period’. Let us assume that the average period is of five months. For calculating the moving average rate to be applied in respect of issues which are made in August 2010, the periodic average rates of April, May, June, July & August of 2010 shall be averaged. For the purpose of calculating the rate to be applied in respect of September 2010 issues, the periodic average rates of May, June, July, August & September 2010 shall be averaged. Thus, the ‘average period’ moves forward & hence the name moving average.

    There shall be two types of moving average also, namely moving simple average & moving weighted average, since two types of periodic average are there, namely, periodic simple average & periodic weighted average.

     The effect of price fluctuations on the rates of issue is smoothened by the moving average method (simple or weighted). Under any moving average method, the issue rates cannot be indefinitely influenced by the excessive high or low price paid for any purchase, for any reason.

2. Replacement Price (or Market Price) Method:

      The price at which materials issued can be replenished is known as the replacement price. Thus it means the market price, because at market price, the replenishment can be done by purchase. Therefore, whenever an issue takes place, ascertainment of replacement price (i.e. market price) is required for charging of issues at replacement price. Thus, the value before issue minus the value of the issue at replacement price is the value of stock after each issue.
The method may be supported on the ground that, the current market price should be represented by the material cost of a job or work order. It can be objected to, also, on the ground that, the actual cost of materials does not get represented by the material cost of jobs; whenever any issue takes place, the ascertainment of the replacement price is not easy unless the market is a perfect market publishing the price daily; in the conditions of rising prices, sometimes the value of closing stock show negative figure (i.e. stock account showing credit balance) which is absurd.

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