![]() high transaction volume with similarly priced products). The notable benefit to the weighted average approach is that it is the least time-consuming, yet it can only be used by a particular type of company (i.e. This limitation of the average cost method is a major reason why widespread adoption of the approach has been slow. the batches of inventories are similar in terms of costs to produce and the sale price. In practice, the average cost method is most appropriate for companies that sell high-volume products all similarly priced, i.e. a diverse product line), where there is substantial variance in the cost of manufacturing the end product, as well as variance in the selling price. One frequent source of criticism is that the average cost method is improper if the products sold are unique (i.e. The average cost method, relative to FIFO or LIFO, tends to be perceived as a simplistic compromise between the other two inventory accounting methods. With that being said, the weighted average approach implies that each product cost receives equal treatment and that the inventory costs are spread evenly, irrespective of the date of purchase or actual production. ![]()
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