Welcome to this article with the aim of helping you with corrected exercises on stock valuation and more specifically on the weighted average unit cost from the Operational Management subject of the BTS MCO.
If you would like to first review the course on the same theme, I invite you to read my article Inventory Management: The 7 Key Points to Master and also the article Supply Management: The 3 essential principles.
The 2 corrected cmup stock sheets on the weighted unit price relate to the calculation of the cmup after each entry but also on the calculation of the cump after each period.
Here is the list of points studied on the valuation of stocks according to the weighted average unit cost method:
- What is Weighted Average Unit Cost?
- Why should you use CUMP?
- Inventory valuation methods
- How to calculate weighted average unit cost
- Example of calculating the weighted average unit cost
- Cump Stock Sheet No. 1 – After each entry
- Cump stock sheet No. 2 – At the end of the period
What is Weighted Average Unit Cost?
In accounting and therefore in management, the weighted average unit cost is one of the inventory valuation methods to their outings.
This cost corresponds to an average which takes into account the stock existing before the new entry (in quantity and value) and the cost of the new items entered (in quantity and value).
Why should you use CUMP?
This inventory valuation method is useful for businesses that purchase and store non-perishable materials over a long period of time.
Inventory valuation methods
You need to know two calculation methods:
- the weighted average unit cost after each outing, that is to say in quasi real time.
- the weighted average unit cost at the end of the period in the case of intermittent inventories.
How to calculate weighted average unit cost
If you would like more details, I invite you to consult my article on Inventory Management entitled Inventory Management: The 7 Key Points to Master and also the article Supply Management: The 3 essential principles.
CMUP =
(Total value of previous stock + Total value of entry)
÷
(Previous stock quantity + Total input quantity)
Example of calculating the weighted average unit cost
A young woman wants to track her soda consumption. Here are the elements you have for this study:
the initial stock at the beginning of March N is 7 cans with a total value of €17,50
The consumption of cans is as follows:
- March 3 N, consumption of a can
- On March 13, she bought a pack of 6 cans on her street for a total of €24.
- On March 15, she received guests. That same day, 4 cans were consumed.
We will answer the following question: How many cans are left as of the evening of March 15, N?
Example of calculating the weighted average unit cost after each entry
For the sake of clarity, the table is divided into 3 main parts: inputs, outputs and stock.
| Dates | Starters | ||
| Quantity | Cost | Total Value | |
| 01/03 / N | 7 | 2,50 | 17,50 |
| 03/03 / N | |||
| 13/03 / N | 6 | 4,00 | 24,00 |
| 15/03 / N | |||
| Outings | ||
| Quantity | Cost | Total Value |
| 1 | 2,50 | 2,50 |
| 4 | 3,25 | 13,00 |
| Stock | ||
| Quantity | Cost | Total Value |
| 7 | 2,50 (1) | 17,50 |
| 6 | 2,50 (2) | 15,00 |
| 12 | 3,25 (3) | 39,00 |
| 8 | 3,25 (4) | 26,00 |
(1): this is the initial stock obtained by performing the following operation: Initial total value in “Input” ÷ Initial quantity in “Input”
(2): There is no change because there is no new entry, the cmup is identical.
(3): There is a new entry so the weighted average price is equal to (15,00 + 24,00) ÷ (6 + 6).
(4): The cump remains the same because there is no new entry.
Example of calculating the weighted average unit cost after each period
| Dates | Starters | ||
| Quantity | Cost | Total Value | |
| 01/03 / N | 7 | 2,50 | 17,50 |
| 03/03 / N | |||
| 13/03 / N | 6 | 4,00 | 24,00 |
| 15/03 / N | |||
| Total | 13 | 3,19 | 41.5 |
(1): the CMUP is therefore: (17,50 + 24,00) ÷ (7 + 6) or €3,19
| Outings | |||
| Dates | Quantity | Cost | Total Value |
| 01/03 / N | |||
| 03/03 / N | 1 | 3,19 | 3,19 |
| 13/03 / N | |||
| 15/03 / N | 4 | 3,19 | 12,76 |
| Stock | |||
| Dates | Quantity | Cost | Total Value |
| 01/03 / N | 7 | 2,53 | 17,76 |
| 03/03 / N | 6 | ||
| 13/03 / N | 12 | ||
| 15/03 / N | 8 | 3,19 (1) | 25,53 |
CUMP Stock Sheet No. 1 – After each entry
States
An industrial company located in the Gard region manufactures electric cables.
The initial stock of cable on 1st May N is 8 tonnes for a total cost of €38. Here are the cable purchases during the month of May N:
- 02/05/N: Purchases of 12 tonnes at €3 per tonne
- 07/05/N: Purchases of 10 tonnes at €3 per tonne
- 13/05/N: Purchases of 14 tonnes at €4 per tonne
- 20/05/N: Purchases of 16 tonnes at €4 per tonne
Stock outflows during the same period are as follows:
- 6 tons on 3/05/N
- 12 tons on 08/05/n
- 10 tons on 11/05/N
- 10 tons on 14/05/N
- 10 tons on 22/05/N
We will present the stock sheet with the weighted average unit cost method.
Work to do
Present the cable stock sheet as of 31/05/N rounded to the nearest euro.
Proposed correction
Rounded to the nearest Euro.
| Dates | Starters | ||
| Quantity | Cost | Total Value | |
| 01/05 / N | 8 | 38 400 | |
| 02/05 / N | 12 | 3 900 | 46 800 |
| 03/05 / N | |||
| 07/05 / N | 10 | 3 800 | 38 000 |
| 08/05 / N | |||
| 11/05 / N | |||
| 13/05 / N | 14 | 4 100 | 57 400 |
| 14/05 / N | |||
| 20/05 / N | 16 | 4 000 | 64 000 |
| 22/05 / N | |||
| Dates | Outings | ||
| Quantity | Cost | Total Value | |
| 01/05 / N | |||
| 02/05 / N | |||
| 03/05 / N | 6 | 4 260 | 25 560 |
| 07/05 / N | |||
| 08/05 / N | 12 | 4 068,33 (10) | 48 820 (11) |
| 11/05 / N | 10 | 4 068,33 (15) | 40 683,33 (16) |
| 13/05 / N | |||
| 14/05 / N | 10 | 4 096,04 (23) | 40 960,41 (24) |
| 20/05 / N | |||
| 22/05 / N | 10 | 4 026,19 (30) | 40 261,93 |
| Dates | Stock | ||
| Quantity | Cost | Total Value | |
| 01/05 / N | 8 | 4 800 | 38 400 |
| 02/05 / N | 20 (1) | 4 260 (3) | 85 200 (2) |
| 03/05 / N | 14 (4) | 4 260 (6) | 59 640 (5) |
| 07/05 / N | 24 (8) | 4 068,33 (9) | 97 640 (7) |
| 08/05 / N | 12 (12) | 4 068,33 (14) | 48 820 (13) |
| 11/05 / N | 2 (17) | 4 068,33 (19) | 8 136,67 (18) |
| 13/05 / N | 16 (20) | 4 096,04 (22) | 65 536,67 (21) |
| 14/05 / N | 6 (25) | 4 096,04 | 24 576,26 |
| 20/05 / N | 22 (27) | 4 026,19 (29) | 88 576,26 (28) |
| 22/05 / N | 12 (31) | 4 026,19(33) | 48 314,33 (32) |
(1): this is the initial stock that is added to the incoming stock, 8 + 12
(2): this is the value of the stock at the end of the day on 02/05/N, i.e. 20 × 4
(3): this is the calculation of the weighted average price: 85 ÷ 200
(4): this is the amount of stock remaining after release, i.e. 20 – 6
(5): this is the value of the stock at the end of the day on 03/05/N, i.e. 14 × 4
(6): this is the calculation of the weighted average unit cost, i.e. 59 ÷ 640
(7): this is the value of the stock at the end of the day on 07/05/N, i.e. 24 × 4
(8): this is the quantity of stock after entry and taking into account the previous stock, i.e. 10 + 14
(9): this is the calculation of the weighted average price: 97 ÷ 640
(10): this is the report of the weighted average unit cost (4) to evaluate the output
(11): this is the value of the outgoing stock on 12/05/N, i.e. 12 × 4
(12): this is the amount of stock remaining after release, i.e. 24 – 12
(13): this is the value of the outgoing stock on 08/05/N, i.e. 12 × 4
(14): this is the calculation of the weighted average unit cost, i.e. 48 ÷ 820
(15): this is the report of the weighted average unit cost (4) to evaluate the output
(16): this is the value of the outgoing stock on 11/05/N, i.e. 10 × 4
(17): this is the quantity of remaining stock, i.e. 12 – 10
(18): value of the stock remaining at the end of the day on 11/05/N, i.e. 2 × 4
(19): this is the calculation of the weighted average unit cost, i.e. 8 ÷ 136,67
(20): new quantity of stock at the end of the day on 13/05/N taking into account the purchase and the previous stock, i.e. 2 +14
(21): this is the value of the stock at the end of the day on 13/05/N, i.e. 16 × 4
(22): New calculation of the cmup i.e. 65 ÷ 536,67
(23): this is the report of the weighted average unit cost (4) to evaluate the output
(24): this is the value of the outgoing stock on 14/05/N, i.e. 10 × 4
(25): this is the quantity of stock remaining at the end of the day on 14/05/N, i.e. 16 – 10
(27): New final stock taking into account the purchase of 16 quantities, i.e. 6 + 16
(28): Value of the final stock at the end of the day on 20/05/N, i.e. 22 × 4
(29): New weighted average unit cost of 88 ÷ 576,26
(30): Taking into account the cmup to evaluate the output
(31): Remaining stock after the day's release is 22 – 10
(32): Value of the final stock on 22/05/N i.e. 12 × 4
(33): Weighted average price as of 22/05/N
CUMP Stock Sheet No. 2 – End of period
This method consists of calculating the weighted average unit cost after each period which can be a week, a month or any other period.
Therefore, the goods purchased during the same period will all have the same cmup. Similarly, the stock will only be revalued at the end of the period.
A company will use this method for products whose prices change infrequently or which have low inventory value.
States
I will repeat the same statement but apply the cmup method at the end of the period.
Proposed correction
The input table is not modified. However, a "Total" line must be added in order to highlight the CUMP. We therefore have the following table for the "Inputs" part:
| Dates | Starters | ||
| Quantity | Cost | Total Value | |
| 01/05 / N | 8 | 38 400 | |
| 02/05 / N | 12 | 3 900 | 46 800 |
| 03/05 / N | |||
| 07/05 / N | 10 | 3 800 | 38 000 |
| 08/05 / N | |||
| 11/05 / N | |||
| 13/05 / N | 14 | 4 100 | 57 400 |
| 14/05 / N | |||
| 20/05 / N | 16 | 4 000 | 64 000 |
| 22/05 / N | |||
| Total | 60 (1) | 4 076,66 (3) | 244 600 (2) |
(1): This is the sum of the Quantity column, i.e. 8 +12 + 10 + 14 + 16
(2): this is the sum of the column of values, i.e. 38 + 400 + 46 + 800 + 38
(3): this is the calculation of the weighted average unit cost at end of period or 244 ÷ 600
| Dates | Outings | ||
| Quantity | Cost | Total Value | |
| 01/05 / N | |||
| 02/05 / N | |||
| 03/05 / N | 6 | 4 076,66 (1) | 24 460 (2) |
| 07/05 / N | |||
| 08/05 / N | 12 | 4 076,66 (1) | 48 920 (2) |
| 11/05 / N | 10 | 4 076,66 (1) | 40 766,66 (2) |
| 13/05 / N | |||
| 14/05 / N | 10 | 4 076,66 (1) | 40 766,66 (2) |
| 20/05 / N | |||
| 22/05 / N | 10 | 4 076,66 (1) | 40 766,66 (2) |
| Total | 48 | 4 076,66 | 195 679,98 |
(1): Report of the cmup for each stock exit
(2): each output is evaluated at the same weighted average unit cost cumulative.
| Dates | Stock | ||
| Quantity | Cost | Total Value | |
| 01/05 / N | 8 | 4 800 | 38 400 |
| 02/05 / N | 20 | ||
| 03/05 / N | 14 | ||
| 07/05 / N | 24 | ||
| 08/05 / N | 12 | ||
| 11/05 / N | 2 | ||
| 13/05 / N | 16 | ||
| 14/05 / N | 6 | ||
| 20/05 / N | 22 | ||
| 22/05 / N | 12 | ||
| Total | 12 (1) | 4 076,66 | 48 920,02(2) |
(1): final stock in quantity = initial stock + total entries in quantity – total exits in quantity i.e. 8 + 52 – 48
(2): final stock in value = initial stock + total entries in value – total exits in value i.e. 38 + 400 – 206