Average Cost Valuation

Average Cost Valuation [Periodic]

Define 'Average Cost'

Average Cost or Weighted Average Cost = Total Cost [Inward Value] / Total Qty [Inward qty] {Annual}

Flow of Average Cost Calculation in Tally

The example provided below shows the Flow of the Average Cost in Tally.

Entries:

Date

Particulars

Tracking Number

Qty

Rate

Amount

02-04-2008

Receipt Note

No.1

100

120

12000

04-04-2008

Purchase

Against No.1

50

125

6250

05-04-2008

Sales

 

15

150

2250

10-04-2008

Rejection Out

Against No.1

-5

120

-600

11-04-2008

Debit Note

Against No.1

2

120

240

24-04-2008

Purchase

Against No.1

47

135

6345

Let us see how the Average Cost is valuated in Tally for the entries mentioned above:

 

 

Inward

Tracking System

Average Cost

Date

 

Qty

Rate

Amount

No.

Qty

Rate

Amount

Qty

Rate

Amount

02-04-2008  

Receipt Note

 

 

 

1

100

120

12000

100

120.00

12000

04-04-2008

Purchase

50

125

6250

1

-50

120

-6000

100

122.50

12250

05-04-2008

Sales

 

 

 

 

 

 

 

100

122.50

12250

10-04-2008

Rejection Out

 

 

 

1

-5

120

-600

95

122.63

11650

24-04-2008  

Purchase

47

135

6345

1

-47

120

-5640

95

130.05

12355

 

 

 

 

Outward

Consumption

Closing (Daily)

Closing (Stock Voucher)

Date

 

Qty

Rate

Amount

Rate

Amount

Qty

Rate

Amount

Qty

Rate

Amount

02-04-2008

Receipt Note

 

 

 

 

 

100

 120.00

12,000.00

 

 

 

04-04-2008  

Purchase

 

 

 

 

 

100

122.50

12,250.00

50

 245.00

 12,250.00

05-04-2008

Sales

15

150

2250

122.50

1837.5

85

122.50

 10,412.50

35

297.50

 10,412.50

10-04-2008  

Rejection Out

 

 

 

 

 

80

122.63

9,810.53

35

280.30

 9,810.53

11-04-2008

Debit note

 

 

 

 

 

80

122.63

 9,810.53

33

  297.29

 9,810.53

24-04-2008

Purchase

 

 

 

 

 

80

130.05

 10,404.21

80

 130.05

10,404.21

A detailed explanation for the calculation shown above is as follows:

On 2nd April 2008

A Receipt Note entry was passed with a tracking number No.1. So the Average Cost on 2nd April 2008 is 12000/100 = Rs.120.

In the Stock Voucher details, the Receipt Note show the closing value as Rs. 12000 under the Purchase Bills pending [collection].

 

In a daily balance, press F6. The Closing Value of stock is displayed as Rs.12000.

On 4th April 2008

The Purchase Entry is passed against Receipt Note no.1. Already the Receipt Note cost is added to the Inward Cost on 2nd April 2008. The difference between the Receipt Note value and Purchase value will be added from the Inward Cost.

The Purchase value is Rs. 6250 and the Receipt Note value is 6,000 so the difference, which is Rs.250 will get added to the Inward Cost.

As on 4th April 2008, the Average Cost = (12000+250) / 100 = 122.50. The Closing Value is Rs.12,250 for 100 nos.

Closing Qty > Opening Quantity + Inward Quantity – Outward Quantity

Closing Rate > Closing Value / Closing Qty

Closing Value > System determined value as per valuation method selected in the Item Master

On purchasing a line item, the closing rate is shown as Rs.245 [12250 / 50 ] since the closing value on that day is Rs.12,250 and the closing quantity as per Stock Voucher is 50. This is because the Receipt Note will show it under the collection of Purchase Bills pending.

 

 In the Daily breakup, the difference of the Receipt Note and Purchase is added to the Closing Value.

On 5th April 2008

Sales made for 15 nos. of Quantity.

The Cost of Sale is determined based on the Average Cost on 5th April 2008. The Average Cost continues to be Rs.122.50 since there is no change in the Inward Cost. So the consumption or cost of sale = 15 nos. x Rs.122.50 = 1837.50

Likewise the Closing Value of an item  = [100-15] x [122.50] = 85 x 122.50 = 10412.50

Transactional Consumption --> System determined value based on valuation method

Total Consumption --> Opening Value + Inward Value – Closing Value

Transactional Gross Profit  --> Outward Value – Transactional Consumption value

Total Gross Profit --> Total Outward Value – Total Consumption value

On 10th April 2008

The Rejection Out entry was passed against Tracking number 1 for 5 Nos.

Since the item is sent out of the company, the valuation gets affected. So the Rejection Out value automatically gets reduced from the Inward Cost.

Average Cost = [12250 – 600] / [100-5] = 11650/95 = Rs.122.63

Closing Quantity = 85 - 5 = 80 Nos.

Closing Value     = 80 Nos. x Rs.122.63 = 9810.53

On 11th April 2008

The Debit Note entry is passed against the Rejection Out Tracking number 1. Already a Rejection Out cost is included in the Inward Cost and only the difference of the Debit Note Cost and Rejection Out cost gets included in the Inward Cost.

The difference between a Debit Note and Rejection out = [2 x 240] – [2 x 240] = Zero.

The Average Cost continues to be Rs.122.63 since there is no change in the Inward Cost.

Closing value = 80 x 122.63 = 9810.53

On 24th April 2008

A Purchase Note is raised against a balance Receipt Note tracking Number 1. Since the Receipt Note Cost is already included in the Inward Cost, only the difference between a Receipt Note Cost and Purchase Cost can be included in the

Inward Cost.

The difference between a Purchase and Receipt Note = [47 x 135] – [47 x 120] =  Rs. 705 is added to the Inward Cost.

Total Inward Cost = Rs.11650+ 705 = 12355

Total Inward Qty  = 95

Average Cost = 12355 / 95 = 130.05

Closing Quantity = 80

Closing Value = 80 x 130.05 = 10,404.21

 

Rs.955 is the difference between the Purchase and Receipt Note cost. [250+705=955]