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Explain the following:
a.) Average Price Method - is the method by which the value of total assets or expenses is assumed to be equal to the average cost of the total assets or expenses. Under this method, it is assumed that the cost of inventory is based on the average cost of the goods available for sale during the period. It is computed by dividing the total cost of goods by the total units which gives a weighted average unit cost for the units of the closing inventory.
b.) Weighted Average Method - is the method of calculation in which the weighted average of both the lot sizes as well as the prices of the lot. This method is best for valuing material issues. This method is very useful where the prices and quantities of items vary. Practically, this method is very simple to calculate.
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