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Concept Of Simple Average Method, Its Advantages And Disadvantages

In simple average method, issue price of materials are fixed at average unit price. Simple average is an average of price without considering the quantities involved. The average price is calculated by dividing the total of the rates of the materials in the stores by the number of rates of prices.

Advantages Of Simple Average Method
Main advantages of simple average method are as follows:

1. Simple average method is very suitable when materials are received in uniform lot quantities.
2. Simple average method is very easy to operate.
3. Simple average method reduces clerical work.

Disadvantages Of Simple Average Method
Major disadvantages of simple average method are as follows:

1. If the quantity in each lot varies widely, the average price will lead to erroneous costs.
2. Costs are not fully recovered.
3. Closing stock is not valued at the current assets.

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