Prepare a Stores Ledger Account showing the receipts and issues, pricing the materials issued on the basis of Weighted Average.

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Understand the Problem

The question is asking to prepare a Stores Ledger Account based on the provided receipts and issues of Material X, using the Weighted Average method for pricing.

Answer

Remaining Stock: 400 units at Rs. 4.025 per unit.
Answer for screen readers

The Stores Ledger Account shows:

Remaining Stock: 400 units at Weighted Average Cost Rs. 4.025.

Steps to Solve

  1. Calculate Total Units and Value for Each Receipt

    We begin by calculating the total units received and their respective total values:

    • Opening Stock:

      • Units: 200
      • Value: $200 \times 3.50 = 700$
    • Purchase on October 3:

      • Units: 300
      • Value: $300 \times 4.00 = 1200$
    • Purchase on October 13:

      • Units: 900
      • Value: $900 \times 4.30 = 3870$
    • Purchase on October 23:

      • Units: 600
      • Value: $600 \times 3.80 = 2280$

    The total units received = $200 + 300 + 900 + 600 = 2000$ units

    The total value received = $700 + 1200 + 3870 + 2280 = 8050$.

  2. Calculate Weighted Average Cost per Unit

    The weighted average cost per unit is calculated using the total value divided by the total units:

    $$ \text{Weighted Average Cost} = \frac{\text{Total Value}}{\text{Total Units}} = \frac{8050}{2000} = 4.025 $$

  3. Record Issues and Calculate Cost for Each Issue

    We need to apply the weighted average cost to the issued units:

    • October 5: Issued 400 units

      • Cost: $400 \times 4.025 = 1610$
    • October 15: Issued 600 units

      • Cost: $600 \times 4.025 = 2415$
    • October 25: Issued 600 units

      • Cost: $600 \times 4.025 = 2415$
  4. Prepare the Stores Ledger Account

    We will summarize the receipts and issues in the ledger format:

    Stores Ledger Account
    Date      | Description    | Units  | Price/unit | Total Value
    ----------------------------------------------------------
    01/10     | Opening Stock  |   200  |   3.50     |    700
    03/10     | Purchase       |   300  |   4.00     |   1200
    13/10     | Purchase       |   900  |   4.30     |   3870
    23/10     | Purchase       |   600  |   3.80     |   2280
    ----------------------------------------------------------
    Total     |                |  2000  |            |   8050
    ----------------------------------------------------------
    05/10     | Issued         |   400  |   4.025    |   1610
    15/10     | Issued         |   600  |   4.025    |   2415
    25/10     | Issued         |   600  |   4.025    |   2415
    ----------------------------------------------------------
    Total     |                |  1600  |            |   5440
    
  5. Calculate Remaining Stock and Value

    Remaining units will be calculated as total received minus total issued:

    $$ \text{Remaining Units} = 2000 - 1600 = 400 $$

    The remaining value is calculated as:

    $$ \text{Remaining Value} = \text{Remaining Units} \times \text{Weighted Average Cost} = 400 \times 4.025 = 1610 $$

The Stores Ledger Account shows:

Remaining Stock: 400 units at Weighted Average Cost Rs. 4.025.

More Information

The Weighted Average method spreads the cost of material over the total units available, providing a consistent pricing strategy.

Tips

  • Forgetting to update the weighted average after each issue: Ensure to keep the weighted average constant when multiple issues occur without further receipts.
  • Incorrect total calculation of stocks and values: Double-check arithmetic operations for accuracy.
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