What are the Characteristics, Advantages and Disadvantages of the Weighted Average Method?

In the world, companies are an important pillar of its economy, since they contribute to the production of raw materials and services. These are used for the purpose of offering a better quality of life for people regardless of the country to which it belongs.

However, in order to comply with each of them, it is essential to implement the administrative process encompassing, planning, organizing, directing and controlling resources. Many for their permanence choose to use different sources of financing that can in some cases offer numerous advantages and disadvantages.

However, it is also important that they handle a good inventory system that guarantees the existence of the products or services. Also a real budget of the economic value of each one, in case there is any inflation.

The inventory allows the company to keep a meticulous and accurate record of each of the components on a regular basis. To achieve an efficient inventory it is prudent to do an excellent production planning in conjunction with an inventory control as a premise for future changes.

There are different methods that are used by companies for inventory calculation and control, the ABC method allows the products to be divided into three classes. To know what are the most important products or services that should be considered at the time of production.

study the weighted average

The FIFO method consists of knowing the products that enter the warehouses first and that these are the first to be sold. This method is used in order to prevent products from being damaged or are on their expiration date and may cause losses to the company.

Another method used for inventory control is the LIFO where it is monitored that the goods that leave the warehouses or warehouses are those that entered last are the first to be sold and those that entered first are the last to be sold. But one of the preferred methods used by the vast majority of companies is the weighted average method.

What is the weighted average method?

The weighted average method is carried out by calculating the sum of goods or items that we have in stock, with the new ones acquired, then divided with those that are in the warehouse.

You previously took into account the existing merchandise when you calculated your initial inventory, then as you acquire new merchandise you make the summation. So you can actually know when you have in stock with the new ones acquired.

This method provides the cost of sale must have each of the items that will be sold to future customers.

In addition, you can effectively direct the organization and planning of the company in relation to inventory and at the same time reach the cost of the merchandise. These prices are real and balanced as it symbolizes the average price of how the merchandise was acquired and then delivered to consumers.

Advantages and disadvantages of the weighted average method

When using the weighted average method You will be able to find advantages and disadvantages that you should consider with its application. Some of its advantages are:

  • This method can apply in any company, industry or organization as it generates merchandise, products prices that customers can obtain.
  • Its application is not complicated, rather it is easy and simple for the necessary calculations in your company, guaranteeing you an effective inventory control.
  • If inflation occurs in the country where you reside, you will not have losses because your profit will cover the cost previously calculated as well as the new ones. That is prices will remain stable without harming you.

But, just as there are these advantages, it is also important that you know its disadvantages in the method of moderate average these are:

program to keep an inventory control

  • When you register this inventory control it usually affects your starting inventory, It can even affect the calculation of the other costs, both the initial and the final one.
  • The registration of the existing merchandise or product with the registration of the entry of the new merchandise or product can be cumbersome.

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