{"id":11329,"date":"2021-11-21T13:12:32","date_gmt":"2021-11-21T07:42:32","guid":{"rendered":"https:\/\/scholarsclasses.com\/blog\/?p=11329"},"modified":"2025-10-09T17:00:41","modified_gmt":"2025-10-09T11:30:41","slug":"simple-average-method","status":"publish","type":"post","link":"https:\/\/scholarsclasses.com\/blog\/simple-average-method\/","title":{"rendered":"Simple Average Method (Meaning, Formula, Advantages, and Disadvantages) | Free Cost Accounting Articles"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_81 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69dc827cad829\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69dc827cad829\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/scholarsclasses.com\/blog\/simple-average-method\/#Simple_Average_Method\" >Simple Average Method<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/scholarsclasses.com\/blog\/simple-average-method\/#Simple_Average_Method_Formula\" >Simple Average Method Formula<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/scholarsclasses.com\/blog\/simple-average-method\/#Advantages_Of_Simple_Average_Method\" >Advantages Of Simple Average Method<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/scholarsclasses.com\/blog\/simple-average-method\/#Disadvantages_Of_Simple_Average_Method\" >Disadvantages Of Simple Average Method<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/scholarsclasses.com\/blog\/simple-average-method\/#Exmaple\" >Exmaple<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading has-text-align-center\"><span class=\"ez-toc-section\" id=\"Simple_Average_Method\"><\/span><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-black-color\">Simple Average Method<\/mark><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-image size-large is-resized\"><img decoding=\"async\" width=\"1024\" height=\"576\" data-src=\"https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/11\/Simple-Average-Method-1024x576.jpg\" alt=\"Simple Average Method\" class=\"wp-image-11353 lazyload\" style=\"--smush-placeholder-width: 1024px; --smush-placeholder-aspect-ratio: 1024\/576;width:718px;height:auto\" title=\"\" data-srcset=\"https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/11\/Simple-Average-Method-1024x576.jpg 1024w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/11\/Simple-Average-Method-300x169.jpg 300w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/11\/Simple-Average-Method-768x432.jpg 768w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/11\/Simple-Average-Method-1536x864.jpg 1536w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/11\/Simple-Average-Method-640x360.jpg 640w, https:\/\/scholarsclasses.com\/blog\/wp-content\/uploads\/2021\/11\/Simple-Average-Method.jpg 1920w\" data-sizes=\"(max-width: 1024px) 100vw, 1024px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" \/><figcaption class=\"wp-element-caption\"><strong>Simple Average Method<\/strong><\/figcaption><\/figure>\n\n\n\n<p>Under this method, materials are issued at the average price of materials on hand on the date of issue. The simple average price is calculated by dividing the total of all rates of material in hand by the number of rates. The lot which is exhausted, based on the FIFO method is excluded in computing the average.<\/p>\n\n\n\n<p>In the simple average method, the issue price of materials is fixed at an average unit price. Simple average is an average of price without considering the quantities involved. The average price is calculated by dividing the total of the rates of the materials in the stores by the number of rates of prices.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Simple_Average_Method_Formula\"><\/span><strong>Simple Average Method<\/strong> Formula<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>Rate of Issue =Total of Different Rates \/ No. of Rates<br><\/strong>This method is useful when the materials are received in uniform quantities and purchase prices are normally stable.<\/p>\n\n\n\n<ul style=\"color:#f70505\" class=\"wp-block-list has-text-color\">\n<li><a href=\"https:\/\/scholarsclasses.com\/blog\/fifo-full-form\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/fifo-full-form\/\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-red-color\">First in First out Method (FIFO)<\/span><\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/scholarsclasses.com\/blog\/lifo-meaning\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/lifo-meaning\/\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-red-color\">Last in First out Method (LIFO)<\/span><\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/scholarsclasses.com\/blog\/simple-average-method\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/simple-average-method\/\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-red-color\">Simple Average Method<\/span><\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/scholarsclasses.com\/blog\/weighted-average-inventory-method\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/weighted-average-inventory-method\/\" target=\"_blank\" rel=\"noreferrer noopener\"><span class=\"has-inline-color has-vivid-red-color\">Weighted Average Method<\/span><\/a><\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages_Of_Simple_Average_Method\"><\/span><strong><strong>Advantages Of Simple Average Method<\/strong><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>i) This method is easy to operate.<br>ii) It gives reasonably accurate results if prices are stable.<br>iii) Simple average method reduces clerical work.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Disadvantages_Of_Simple_Average_Method\"><\/span><strong>Disadvantages Of Simple Average Method<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>i) Materials are not priced at actual costs.<br>ii) It does not take into account the quantity of materials purchased.<br>iii) Verification of closing stock becomes difficult.<br>iv) When the price and quantity of different lots are widely fluctuating, this method gives incorrect results.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Exmaple\"><\/span><strong>Exmaple<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>In&nbsp;cost accounting, we can calculate the value of material issues on the basis of&nbsp;the simple&nbsp;average price method. Under this method, we can calculate the total unit cost of each purchase, and then it is divided by the total no. of units.<br><br>Suppose, you have bought the material<br><br>1st time 100 units @ Rs. 4<br>2nd time 200 units @ Rs. 3<br>3rd time 150 units @ Rs. 2<br><br><strong>The material issue with simple average method <br><\/strong>= total of the unit cost of each purchase\/ total no. of units<br>= 4+3+2 \/ 3 = Rs. 3<br><br>Now, all material will be issued from the store at the price of Rs. 3. This method is more beneficial than&nbsp;<a href=\"https:\/\/youtu.be\/ZvvbTP1JlWg\" target=\"_blank\" rel=\"noreferrer noopener\">FIFO<\/a>&nbsp;and&nbsp;LIFO, if there is very small fluctuation in the buying prices.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"https:\/\/scholarsclasses.com\/blog\/introduction-to-cost-accounting\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/introduction-to-cost-accounting\/\" target=\"_blank\" rel=\"noreferrer noopener\">What is Cost Accounting?<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/scholarsclasses.com\/blog\/introduction-to-cost-accounting\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/introduction-to-cost-accounting\/\" target=\"_blank\" rel=\"noreferrer noopener\">Meaning of Cost.<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/scholarsclasses.com\/blog\/introduction-to-cost-accounting\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/introduction-to-cost-accounting\/\" target=\"_blank\" rel=\"noreferrer noopener\">Meaning of Costing<\/a><\/li>\n\n\n\n<li><a href=\"https:\/\/scholarsclasses.com\/blog\/introduction-to-cost-accounting\/\" data-type=\"URL\" data-id=\"https:\/\/scholarsclasses.com\/blog\/introduction-to-cost-accounting\/\" target=\"_blank\" rel=\"noreferrer noopener\">Meaning of Cost Accounting<\/a><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>&#46;&#46;&#46;<\/p>\n","protected":false},"author":1,"featured_media":11353,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[7,1],"tags":[3875],"class_list":["post-11329","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-degree-college","category-misc","tag-simple-average-method"],"_links":{"self":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/11329","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/comments?post=11329"}],"version-history":[{"count":3,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/11329\/revisions"}],"predecessor-version":[{"id":39745,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/posts\/11329\/revisions\/39745"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/media\/11353"}],"wp:attachment":[{"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/media?parent=11329"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/categories?post=11329"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/scholarsclasses.com\/blog\/wp-json\/wp\/v2\/tags?post=11329"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}