Average Method Homework Help, Assignment Help, Online Tutor, Tutoring

Submit Assignment

* *

Payment Online Assignment Help

Cost Accounting

Homework Help

sfsf

Average Method

Simple average method may also be employed to compute process costs in place of FIFO method. The principle underlying it is that since it is not possible to identify or first complete the opening work-in-progress, the work is carried on all units simultaneously and the units to be transferred to next process may not necessarily contain all units of opening work-in-progress, or, so to say, the closing work-in-progress need not compulsorily be out of units introduced during this period. Moreover, the degree of completion of opening work-in-progress may not be known. Under all such circumstances, average method is to be used for computation of costs. The cost of opening work-in-progress and the cost incurred during the period are added up. The units completed and transferred and the equivalent units of closing work-in-progress on the basis of degree of completion are added to arrive at total equivalent production. The total cost is divided by the total equivalent production to obtain the per unit cost. The evaluation may be done separately for material cost, labour cost and overhead cost as per the stage of completion reached in respect thereof.

Thus, the main difference between FIFO method and average method is that units of opening work-in-progress and their cost are taken in full average method while under FIFO method only the remaining work done now is considered.