Ministry of Education

Cyril Potter College of Education

TVET Department
Business Studies Option

PBS 261: Cost and Management Accounting

Week Four (4)

Topic: Stock Valuation

Sub topic: AVCO

The AVCO method of stock valuation

AVCO- average cost- calculates the cost of ending inventory and cost of goods sold for a period on the
basis of weighted average cost per unit of inventory.

Using the AVCO method, with each receipt of goods the average cost for each item of inventory is
recalculated. Further issues of goods are then at that figure, until another receipt of goods means that
another recalculation is needed.

To find the average cost of a unit of item= total cost of purchase

total units purchased

Date Purchases Cost of sales AVCO Balance total

Jan 2 600 @ $40 $24,000
7 300 @ $45 $24,000 + $13,500= 37,500 $13,500 $37,500
600 +300 900
average unit cost = $41.67
8 200 @ $41.67 ($8,334) $29,166
10 500 @ $50 $29,166+$25,000 = $54,166 $25,500 $54,166
$700+$500 =1200 units
average unit cost = $45.16
 18 600 @ $52 $54,166 + $31,200= $85,366 $31,200 $85,366
1200+600 = 1800
average unit cost= $47.42
30 12,000@$47.4 ($56,904)
2
$28,462
Notes:
After ever purchase AVCO was recalculated
cost of sales was charged at the AVCO value and not the cost value

Advantages and Disadvantages

The closing value of $28,462 would be transferred to the trading account as stock value.

Student’s Activity

Using the one example compare the three methods