Q.What is weighted average method of material issue? Discuss its advantages and disadvantages.

Weighted average prices issues at (total stock value ÷ total stock quantity), revised after each purchase — smoothing prices but needing frequent recalculation.

Meaning. Under the weighted average method of pricing material issues, a new average rate is worked out each time materials are received, by dividing the total value of material in stock by the total quantity in stock. All issues until the next purchase are priced at this rate, and closing stock is also valued at it.

• Weighted average rate = Total value of materials in stock ÷ Total quantity in stock.

Simple illustration: 100 units @ Rs. 10 (Rs. 1,000) + 100 units @ Rs. 12 (Rs. 1,200) → stock 200 units worth Rs. 2,200 → weighted average rate = 2,200 ÷ 200 = Rs. 11 per unit, at which further issues are priced.

Advantages

1. Evens out price fluctuations — issues are charged at an average, avoiding the sharp swings of FIFO/LIFO when prices change.
2. Logical and representative — the issue price reflects the mix of all materials in stock, not just one lot.
3. Consistent and acceptable — recognised by accounting standards; suitable when many small issues are made.
4. Less clerical sorting of lots than FIFO/LIFO (no need to track which specific lot is issued).

Disadvantages

1. Frequent recomputation — a new average must be calculated after every purchase, which is laborious where receipts are many. …