Advantages of average costing method, Cost Accounting

Average costing method has the following main advantages:

1.It is a realistic costing method useful to management in analyzing operating results and appraising future production.

2.It minimizes the effect of unusually high or low materials prices, thereby making possible more stable cost estimates for future work.

3.It is practical and less expensive perpetual inventory system.

The average costing method divides the total cost of all materials of a particular class by the number of units on hand to find the average price. The cost of new invoices are added to the total in the balance column; the units are added to the existing quantity; and the new total cost is divided by the new quantity to arrive at the new average cost. Materials are issued at the established average cost until a new purchase is recorded. Although a new average cost may be computed when materials are returned to vendors and when excess issues are returned to the storeroom, for practical purposes, it seems sufficient to reduce or increase the total quantity and cost, allowing the unit price to remain unchanged. When a new purchase is made and a new average is computed, the discrepancy created by the returns will be absorbed.

Posted Date: 2/28/2013 4:59:31 AM | Location : United States







Related Discussions:- Advantages of average costing method, Assignment Help, Ask Question on Advantages of average costing method, Get Answer, Expert's Help, Advantages of average costing method Discussions

Write discussion on Advantages of average costing method
Your posts are moderated
Related Questions
You want to save $40,000 for a down payment on a new home. You expect to save $7,000 per year, be in the 25% tax bracket and hope to earn 4% on your investments. How long (in mon

Hi, i need the solution manual for cost accounting managerial emphasis 12 edition

Loring Company had the following data for the month: Variable costs per unit: Direct Materials $4 Direct Labor 3.20 Variable Overhead 1 Variable selling expense 0.40 Fixed Ov

WORKED EXAMPLES OF EXPECTED CASH COLLECTIONS PATTERNS

Variable Overhead Variance This is the dissimilarity between the variable overheads absorbed and the actual variable overheads warned. Therefore it can be described as the und

Companies invest in overseas firms -- i.e., conduct M&As and joint ventures abroad for different reasons, just as the overall investment patterns (or FDI) of individual c

Mission Foods produces two flavors of tacos, chicken and fish, with the following characteristics: Chicken Fish Selling price per taco $3.00 $4.50 Variable cost p

Pauline's Pastry Shop decides to remodel its offices this year. As part of the remodeling, Pauline's trades furniture with a cost of $12,000 that had been expensed in the year of p

As a potential investor, what is the problem with different countries having different accounting standards? As the president of a multinational company, what is the problem with

There are different activities undertaken through a business that prove to be either source or use of cash. These can be categorizes under three broad categories that are: investin