Simple Average Method

In cost accounting, we can calculate the value of material issue on the basis of simple average price method. Under this method, we can calculate the total of unit cost of each purchase and then it is divided by total no. of units.

Suppose, you have bought the material

1st time 500 units @ Rs. 3
2nd time 600 units @ Rs. 4
3rd time 200 units @ Rs. 2

Material issue with simple average method = total of unit cost of each purchase/ total no. of units

= 3 +4+2/3 = Rs. 3

Now, all material will be issued from store on the price of Rs. 3. This method is more benefited than FIFO and LIFO, if there is very small fluctuation in the buying prices.