Why Would a Company Often Calculate and Use Average Costs

question 1

Essay

Why would a company often calculate and use average costs of its products and services rather than actual costs?

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Definitions:

Accounting System

A systematic process of collecting, recording, classifying, summarizing, and interpreting financial transactions of a business.

Purchases Journal

The purchases journal is an accounting record used to document all purchases of merchandise on credit, tracking the total amount owed to suppliers.

Cash Receipts Journal

A specialized accounting journal used to record all cash inflows or cash received by an organization.

Prepaid Insurance

An asset account representing insurance paid in advance, which will be expensed over the period it benefits.