Monthly Average Cost Valuation in TallyPrime: 2 Steps + Example

Monthly Average Cost Valuation Method in TallyPrime is a way of valuing inventory by calculating an average cost for each item at the end of each month.

This average is derived by considering all purchases made during the month.

Table of Contents

1. How Monthly Average Cost Works in TallyPrime:

1. Calculate Average Cost:

At the end of each month, TallyPrime sums up the total cost of purchases made during the month and divides it by the total quantity purchased.

2. Inventory Valuation:

All inventory items are then valued at this average cost until the next month’s average is calculated.

2. Example of Monthly Average Cost in TallyPrime:

Let’s say a company purchases the following quantities of an item in a month:

Purchase 1 (10th): 100 units at ₹50 each = ₹5,000
Purchase 2 (20th): 200 units at ₹60 each = ₹12,000

Total Quantity Purchased in the Month: 300 units
Total Cost: ₹17,000

To calculate the Monthly Average Cost in TallyPrime:

Sum up the total cost of all purchases made during the month.
Divide this total cost by the total number of units purchased during the month.

If you bought 300 units for a total of ₹17,000 in a month, the Monthly Average Cost would be:

Total Cost: ₹17,000
Total Quantity: 300 units
Monthly Average Cost: ₹17,000 ÷ 300 = ₹56.67 per unit

This method helps stabilize inventory valuation across the month.

So, the inventory would be valued at ₹56.67 per unit for the entire month.

3. Benefits of Monthly Average Cost Valuation Method:

1. Smoothens Price Fluctuations:

The monthly average cost method smooths out the impact of price fluctuations, providing a more stable valuation.

2. Ease of Use:

It simplifies inventory management by avoiding the need to track and value each purchase individually.

4. Drawbacks of Monthly Average Cost Valuation Method:

1. Delayed Reflective Cost:

The average cost may not immediately reflect sharp changes in prices, either up or down, during the month.

5. Practical Applications of Monthly Average Cost Valuation Method:

1. Retail and Manufacturing:

This method is useful for businesses with frequent purchases throughout the month, helping to maintain consistent inventory valuation.

6. Conclusion:

The Monthly Average Cost Valuation Method in TallyPrime provides a balanced approach to inventory valuation by averaging costs over the month.

It helps businesses manage fluctuations in purchase prices and simplifies inventory valuation, although it may lag in reflecting real-time cost changes.