# 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

#### 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]