In the monthly average costing method, the closing value of each month will be treated as opening for the next month.
For example:
In the above illustration, the rate (highlighted) is derived as below:
Closing rate= Total inward value/total inward quantity.
April month: 47500/200= 237.50
Consumption is derived as below for April month:
Outward quantity * closing rate as on that date.
Example: On 4-4-2015: 50*100= 5000 (consumption)
Gross profit = Value- Consumption
i.e 125000-5000= 120000
Gross profit percentage = Gross profit/value*100
120000/125000*100= 96.00%.
The closing rate is derived as below for May:
Formula:
Closing rate= Total inward value/total inward quantity.
55750/290= 192.2414 or 192.24
55750 comprises of last month’s closing value (treated as opening) + this month inward.
55750= 332520+22500
Where rate = 55750/290 = 192.24
Consumption is derived as below for May:
Outward quantity * closing rate as on that date.
Example: 11-5-2015 : 90*192.2414= 17301.726 or 17301.72 (consumption)
Gross profit = Value- Consumption
243000-17301.72=225698.28
Gross profit percentage = Gross profit/value*100
225698.28/243000*100=92.88%.
When you see the report as a whole, the same will be shown as below:
The total Consumption is derived from the below formula:
Opening Value + Inward Value – Closing Value
i.e. 70000-38448.27= 31551.73.
Gross profit = Value-Consumption
394000-31551.73= 362448.27