# Monthly Average Method of Stock Valuation

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:

### Formula:

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