Weighted Average Price Method
The calculation can be done for different periods. If the calculation is done on a monthly basis, then it is referred to the periodic method. In this method, the available stock is calculated by:
ADD Stock at beginning of period
ADD Stock purchased during the period
AVERAGE total cost by total qty to arrive at the Average Cost of Goods for the period.
This Average Cost Price is applied to all movements and adjustments in that period.
Ending stock in qty is arrived at by Applying all the changes in qty to the Available balance.
Multiplying the stock balance in qty by the Average cost gives the Stock cost at the end of the period.
Using the perpetual method, the calculation is done upon every purchase transaction.
Thus, the calculation is the same based on the periodic calculation whether by period (periodic) or by transaction (perpetual).
The only difference is the 'periodicity' or scope of the calculation. - Periodic is done monthly - Perpetual is done for the duration of the purchase until the next purchase
In practice, the daily averaging has been used to closely approximate the perpetual method. 6. Bottle neck method ( depends on proper planning support)
Read more about this topic: Stock Management, Retail Supply Chain
Famous quotes containing the words average, price and/or method:
“That’s one thing I like about Hollywood. The writer is there revealed in his ultimate corruption. He asks no praise, because his praise comes to him in the form of a salary check. In Hollywood the average writer is not young, not honest, not brave, and a bit overdressed. But he is darn good company, which book writers as a rule are not. He is better than what he writes. Most book writers are not as good.”
—Raymond Chandler (1888–1959)
“How long most people would look at the best book before they would give the price of a large turbot for it?”
—John Ruskin (1819–1900)
“I am not afraid of the priests in the long-run. Scientific method is the white ant which will slowly but surely destroy their fortifications. And the importance of scientific method in modern practical life—always growing and increasing—is the guarantee for the gradual emancipation of the ignorant upper and lower classes, the former of whom especially are the strength of the priests.”
—Thomas Henry Huxley (1825–95)