CA Intermediate · Cost and Management Accounting · Material Cost
Which statement about the weighted average method of pricing material issues, as used in cost accounting, is correct?
Under the weighted average method, a fresh rate is calculated after each receipt by dividing the total value of stock by the total quantity in stock. Issues are then priced at this rate. It differs from LIFO, which uses the latest price, and from standard pricing.
- AIssues are priced at the latest purchase price, so closing stock is valued at the oldest price
- BA new average rate is computed after every receipt by dividing total stock value by total stock quantityCorrect
- CIssues are priced at the lowest price among all lots currently held in stores
- DIssues are priced at a predetermined standard price fixed in advance
Explanation
Under the weighted average method, after each receipt the total value of material in stock is divided by the total quantity to obtain a new rate used for issues. Option 1 describes LIFO, option 3 is not a recognised method, and option 4 describes the standard price method.
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