Q.Distinguish between the Simple Average Method and the Weighted Average Method of pricing materials issued, stating one limitation of each.

Both average methods smooth out price fluctuations, but they differ in one crucial respect — whether the quantity of each batch is taken into account.

Simple Average computes the issue rate as a plain average of the different rates in stock, ignoring quantities — easy to calculate, but its limitation is that the resulting closing stock value often does not agree exactly with the actual cost of material left in stock. Weighted Average computes the issue rate as total value divided by total quantity, so larger batches correctly carry more weight — its closing stock always ties out exactly with actual cost, but its limitation is that the compute …

One limitation of the Simple Average Method: because batch quantities are ignored, a small batch and a large batch pull the average rate equally, which can distort the issue price away from the true cost of material actually used — and, as a direct consequence, the value of closing stock computed under this method very often fails to tie out exactly with the true cost of material left in stock (demonstrated in the worked illustration earlier in this chapter, where a genuine ₹100 shortfall arose purely from this feature of the method, not from any arithmetic error). …

Students frequently think Simple and Weighted Average differ only in how often the rate is recalculated — in fact BOTH methods recalculate the rate on every fresh receipt; the real difference is WHETHER batch quantity is taken into account when computing that ra …