# Avco

Registered Posts: 6,970
Hi all

Please can anyone explane the accounting eqation for this? am fine on FIFO and LIFO but the average cost has me stumped.

Any help would be fab

Thanks all

Vic

• Registered Posts: 166 ? ? ?
hi
ive just looked at june 2008 ecr exam paper with model answers, and applyed the theory in osbourn books. divide the quantity into the value of the stock. or the way i think is divide the money by the quantity.
• Registered Posts: 6,970
I think i understand that bit but what do you do with sales how do you work it out over accounting periods ect

Thanks for your help by the way :001_smile:
• Registered Posts: 166 ? ? ?
good question
sorry not got that far yet and only five wks to exam can some on else hellp please
• Registered Posts: 6,970
thank gawd mine isnt till december that gives me 7 weeks cramming time phewwwwwwww
• Registered Posts: 218 ? ? ?
When ever there is a stock card / stock valuation method evaluation question, look at the first issue on the card to find which method was used.

Referring to June 2008 paper you will notice that first stock was issued at £2.9250. (take note here of 4 decimal places
very important that you work to 4 decimal places as well)

This can’t be LIFO because the last stock received was at £3.0000

Is it then FIFO? – Calculate the stock price for the balance b/f - £16,800 divide by 6000 kg =£2.8000

Stock was issued at £2.9250 and therefore can not be FIFO. It MUST be AVCO.

Confirm this by dividing the total stock cost by total quantity. £46,800 divide by 16,000 = £2.9250

Now use AVCO method. AVERAGE METHOD

As the name suggests, when ever you issue the stock, use the above formula to find out what the average cost of the stock in the store is. Then issue the stock to production at that price.