In this article, we will understand Inventory valuation using Weighted Average Problems and Solutions. If you want to understand LIFO and FIFO, you can read our previous articles using these links: FIFO LIFO
Weighted Average Problem
Mr. Kevin started its coffee shop business back in 1990. He imports coffee beans from Kenya. His purchase are as follows:
| 1996 | Kgs | Price/Kg Rs. | Total Rs. |
| 1 July | 56 | 20.50 | 1,148 |
| 12 August | 42 | 24.00 | 1,008 |
| 30 September | 49 | 26.00 | 1,274 |
| 15 October | 35 | 35.20 | 1,232 |
| 29 November | 28 | 37.50 | 1,050 |
| 10 December | 24 | 50.00 | 1,200 |
Till December 31, Kevin had sold 168 Kgs amounting to Rupees 8,480/-
Required: Calculate the value of closing stock using FIFO and Weighted Average Method.
Solution
| FIFO | Weighted Average | NRV |
| Rs.2,743 | Rs. 1,950 | Rs.3,331 |
| (W-1) | (W-2) | (W-3) |
As you can see, NRV is more than the cost, inventory or stock will be valued at cost.
| Purchase | Rs. | |
| 10-12-1996 | 24 X 50 | = 1200 |
| 29-11-1996 | 28 X 37 5 | = 1050 |
| 15-10-1996 | 14 X 35.2 | = 493 |
| 2,743 |
(W-2) Weighted Average Cost
| Quantity | Receipt Rate | Value Rs. |
| 56 | 20.50 | 1,148 |
| 42 | 24.00 | 1,008 |
| 49 | 26.00 | 1,274 |
| 35 | 35.20 | 1,232 |
| 28 | 37.50 | 1,050 |
| 24 | 50.00 | 1,200 |
| 234 | 6,912 |
Value of stock = 6,912/ 234 x 66 = Rs, 1,950
(W-3) Net Realizable Value (NRV)
(Sale proceeds / Quantity sold ) x stock in hand = 8,480 / 168 x 66 = Rs 3,331
Statement of Profits
| FIFO Rs. | Weighted Average Rs | |
| 8,480 | 8,480 | |
| Sales | ||
| Less: Cost of sales | 6,912 | 6,912 |
| Purchases | 2,743 | 1,950 |
| Less: Closing stock | 4,169 | 4,962 |
| 4,311 | 3,518 |