COST ACCOUNTING

UNIT 2 - METHODS OF PRICING MATERIAL ISSUES

1. SIMPLE AVERAGE METHOD:

Simple average price is calculated by adding all the different prices and dividing by the
number of such prices. It does not take into account quantities of materials while
computing average price. For instance, when 100 units are purchased @ 9 per unit and
900 units are purchased @ Rs 7 per unit, The simple average price will be = (9+7) /2 = Rs
8.

FORMAT

Stores Ledger Account – SIMPLE AVERAGE METHOD

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Rs. Amt Qty Rs. Amt
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 Simple Average method.

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

Stores Ledger Account – Simple Average Method

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Rs. Amt
(Rs) Rs.
(Rs) (Rs) (Rs)
2 Jan 4,000 4.00 16,000 - - - 4,000 4.00 16,000
500 5.00 2,500 - - - 4,500 - 18,500
20 Jan

5 Feb - - - 2,000 4.50 9,000 2,500 - 9,500

6,000 6.00 36,000 - - - 8,500 - 45,500
10 Feb

12 Feb - - - 4,000 5.00 20,000 4,500 - 25,500

2 Mar - - - 1,000 6.00 6,000 3,500 - 19,500
5 Mar
- - - 2,000 6.00 12,000 1500 - 7,500
15 Mar 4,500 5.50 24,750 - - - 6,000 - 32,250

20 Mar - - - 3,000 5.75 17,250 3,000 - 15,000

Closing stock = 3,000 units = Rs 15,000

WORKING NOTES:

5 Feb = Rs 4 + Rs 5 = 9 = 4.50
2 2
12 Feb = Rs 4 + Rs 5 + Rs 6 = 15 = 5
3 3
20 March = Rs 6 + Rs 5.50 = 11.50 = Rs 5.75
2 2

2 Professor Sogara BI
Head, Department of Commerce(UG)
Krupanidhi Degree College
 2. Prepare Simple Average Method:
Receipt Quantity Rate Issue Quantity
Mar 2 200 units 2.00 -
10 300 units 2.40 -
15 - - 250 units
18 250 units 2.60 -
19 - - 200 units

STORES LEDGER ACCOUNT - SIMPLE AVERAGE METHOD

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Rs. Amt
Rs. Rs.
(Rs) (Rs) (Rs)
Mar 2 200 2.00 400 - - - 200 2.00 400
Mar 10 300 2.40 720 - - - 500 - 1,120
Mar 15 - - - 250 2.20 550 250 - 570
Mar 18 250 2.60 650 - - - 500 - 1,220
Mar 19 - - - 200 2.50 500 300 - 720
Closing stock = 300 units = Rs 720

Working Notes:

Mar 15 = 2.00 + 2.40 = 4.40 = 2.20

2 2
Mar 20 = 2.40 + 2.60 = 5 = 2.50
2 2

3. Prepare Simple Average Method

Receipts:
Date Quantity Rate
4 Feb 200 kg Rs 10.00 per kg
18 Feb 300 kg Rs 12.00 per kg
22 Feb 100 kg Rs 16.00 per kg
Issues:

Date Quantity
6 Feb 100 kg
20 Feb 200 kg
25 Feb 200 kg

3 Professor Sogara BI
Head, Department of Commerce(UG)
Krupanidhi Degree College
 Stores Ledger Account – SIMPLE AVERAGE METHOD

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Rs. Amt
Rs. Rs.
(Rs) (Rs) (Rs)
Feb 4 200 10 2,000 - - - 200 10 2000
- - - 100 10 1000 100 10 1000
Feb 6

Feb 18 300 12 3600 - - - 400 - 4600

- - - 200 11.00 2200 200 - 2,400
Feb 20

Feb 22 100 16 1600 - - - 300 - 4,000

25 Feb
- - - 200 14 2800 100 - 1200

Working Notes: Feb 20th = 10 + 12 = RS 11.00

2
Feb 25th = 12 + 16 = Rs 14.00
2

4. The following transaction occur in the purchase and issue of a material:

NOV 1 Opening stock 500 units @ Rs 2.00 per unit
2 Purchased 400 units @ Rs. 2.10 per unit
5 Issued 600 units
7 Purchased 800 units @ Rs 2.40 per unit
9 Issued 500 units
12 Returned 200 units from 5th issue
17 Purchased 400 units @ Rs 2.50 per unit
25 Issued 600 units
From the above, prepare the stores ledger account using Simple Average method.

4 Professor Sogara BI
Head, Department of Commerce(UG)
Krupanidhi Degree College
 STORES LEDGER ACCOUNT - SIMPLE AVERAGE METHOD

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Rs. Amt Qty Rs. Amt
Rs.
(Rs) (Rs) (Rs)
Nov 1 - - - - - - 500 2 1,000
Nov 2 400 2.10 840 - - - 900 - 1840
Nov 5 - - - 600 2.05 1230 300 - 610
Nov 7 800 2.4 1920 - - - 1100 - 2530
Nov 9 - - - 500 2.25 1,125 600 - 1,405
Nov 12
200(Return)
(5th issue) 2.05 410 - - - 800 - 1815
Nov 17 400 2.50 1000 - - - 1200 - 2,815
Nov 25 - - - 600 2.32 1392 600 - 1,423
Closing stock = 600 units = Rs 1,423.

Working Notes:
Nov 5 = 2 + 2.10 = 4.1 = 2.05
2 2
Nov 9 = 2.10 + 2.4 = 2.25
2
Nov 25 = 2.4 + 2.05 + 2.5 = 6.95 = 2.32
3 3

5 Professor Sogara BI
Head, Department of Commerce(UG)
Krupanidhi Degree College
 5.

STORES LEDGER ACCOUNT - SIMPLE AVERAGE METHOD

Receipts Issues Balance

Date Rate Rate Rate
Qty Amt Qty Amt Qty Rs. Amt
Rs. Rs.
(Rs) (Rs) (Rs)
1/Jan/2016 - - - - - - 300 2.00 600
2/1/2016 200 2.20 440 - - - 500 - 1040
4/1/2016 - - - 150 2.10 315 350 - 725
6/1/2016 200 2.30 460 - - - 550 - 1,185
10/1/2016
10(shortage) 2.17 21.7 540 - 1163

- - - 150 2.17 326 390 - 837

11/1/2016

19/1/2016 - - - 200 2.25 450 190 - 387

22/1/2016 200 2.40 480 - - - 390 - 867

6 Professor Sogara BI
Head, Department of Commerce(UG)
Krupanidhi Degree College
25/1/2016 20(surplus) 2.10 42 - - - 410 - 909
27/1/2016 - - - 250 2.27 568 160 - 341
28/1/2016 200 2.50 500 - - - 360 - 841
30/1/2016 - - - 2.33 47 340 - 794
20(Shortage)
31/1/2016 - - - 150 2.3 345 190 - 449
Closing Stock = 190 units = Rs 449

Working Note:

4/1/2016 = Rs 2 + Rs 2.20 = 4.20 = 2.10

2 2
10/1/2016 = 2 + 2.20 + 2.30 = 2.17
3
11/1/2016 = 2 + 2.20 + 2.30 = 2.17
3
19/1/2016 = 2.20 + 2.30 = 2.25
2
27/1/2016 = 2.30 + 2.40 + 2.10 = 2.27
3
30/1/2016 = 2.30 + 2.40+ 2.10 + 2.50 = 2.33
4
31/1/2016 = 2.40 + 2.10 + 2.50 = 2.3
3

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