Average Stock Calculations

Characteristic

Moving Average

Weighted Average

First In First Out

Last In First Out

Can user reset the cost of the stock

YES, at any time.

YES, but can reset the stock only at month end (when the new average is recalculated).

NO, strictly follows historical cost

NO, strictly follows historical cost

For fast moving consumer goods with price fluctuations, would this method be suitable?

The most suitable method, because prices could be adjusted anytime.

In order for business to remain competitive, the selling price needs to be adjusted regularly base on current market rate.

Since price could only be adjusted once a month, or based on the period of stock recalculations, sometimes this method may not be ideal.

Same product may have different costs, that means, the salesman who is rewarded based on gross profit will have fluctuations of gross profit when they sell the same item.

Same product may have different costs, that means, the salesman who is rewarded based on gross profit will have fluctuations of gross profit when they sell the same item.

How often is the cost of stock being updated?

The cost is updated on a real time basis when there's a purchase, purchase return or trade in.

The cost is only updated based on the total purchase in the period for that month, coupled with existing stock balance on hand.

It does not affect the cost of existing stock, because when those stock are being sold, they will follow their historical cost of stock. Only after existing stock are cleared, the new cost will take effect.

The cost is affected immediately, since the newer stock costs are being exposed first.