CA Intermediate · Cost and Management Accounting · Material Cost
Under the weighted average method of pricing material issues, on which basis is the issue price determined?
Under the weighted average method, the issue price is the total value of materials in stock divided by the total quantity in stock, and it is recalculated each time a new lot is received. This smooths price fluctuations across issues.
- ATotal cost of materials in stock divided by total quantity in stock, recalculated after each receiptCorrect
- BCost of the oldest lot in stock
- CCost of the most recent purchase
- DStandard price fixed in advance
Explanation
In the weighted average method the issue price is the total cost of stock on hand divided by total units on hand, and it is revised after every receipt. The oldest lot describes FIFO, the latest purchase describes LIFO, and a pre-fixed price describes the standard price method.
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