Weighted average method with illustration

What is weighted average method ?

Weighted average method is also used in calculating ending inventory or you may use this to find out  Rate of per unit sold. It is totally different from FIFO and LIFO method here we calculate per unit cost or Rate by dividing cost of goods available for sale to number of units available for sale. In other words  it can be  explain as the average cost method formula can be driven from balance columns,  there you read that units and total amount  only add purchase or issue amount into total amount of balance and then divide total amount by total units in balance. So you will get rate of per unit cost.

As compared to FiFo and LIFO method this method is very easy just focus on my this topic and after that you will be able to solve any problem using average cost method. Again I say follow that link I shared with you so you may able to solve inventory's related question easily using all three method.

Some companies not use FIFO and LIFO method because of the reason that they have to calculate there cost on first units of balance or  last unit of balance some time organization is dealing faster so they may mistake calculating ending inventory. Through weighted average method provide facility to them to calculate ending inventory quickly or another reason of using weighted average method is that  some time items or unit are complicated with each other or intermingled with each other so it is difficult to determine ending inventory through FIFO LIFO method on the other hand using weighted average method you can easily determine the Rate or ending inventory by just dividing cost of goods available for sale to units available for sale.

How we can calculate ending inventory through weighted average method?

So through a illustration  I will writing some entries and their solution using average method. Entries of Maria and company for the month of december 2018 are as follows;

Dec, 1. Beginning inventory of Maria and Co. is 800 units @ of 6 unit each.
5. Maria and co purchased 200 units of material @ of 7 each.
9. Maria and co. Issued or sold 190 units of material.
10. Maria and company return some purchase units of last purchase on date 5 and those units are 10.
15. Maria company purchased 300 units of material @ of 9 each unit.
22. Maria and company sold 1025 units.
31. Maria and company purchases 300 units @ of 9.25 each unit.

Now I am uploading image of this entries solution and after that I will explain this to you.

Explanation 

So here similarly we started solution by writing the name of company, weighted average method inventory and last the month and year of preparing. After that prepare same column like FIFO and LIFO method , if you not read my this topic then prepare five main columns (date, description, Receipt, issued and balance) in receipt, issued and balance prepare three small columns in each( unit, Rate or per unit cost and amount). After that begin your solution with beginning inventory from entries which is  800 units and rate is 6 per unit, so multiple rate with 800 (800×6). In 2nd entry company purchased material so you have rate which is 7 and total units which is 200. Multiplying  these two we got amount, just simply add this amount into balance last total amount which  4800 and purchased amount is 1400 plus them (4800+1400= 6200). Another entry is maria and company issues  190 units. So in this pick the last Rate which is 6.2 (in balance column) multiple this with unit issued ( 190×6.2=1178). So simply subtract this amount from total amount in balance column. Another complicated entry came in this question which Return to supplier. So how I solved this entry I subtracted this amount from balance and wrote this in receipt why because we not issuing or sailing these units these are the units which may have return by organization to those from 9 date they purchase. So that is reason why did not entered in issued column because this is not sale of material. Last two entries are similar to the 5 and 9 dates entries so we did  similar method for recording these two entries.

That's all about this topic. End