Asked by Raymond Pittman on Apr 29, 2024
Verified
Pasquale has the following inventory information. July 1 Beginning Inventory 20 units at $19$3807 Purchases 70 units at $201,40022 Purchases 10 units at $24240$2,020\begin{array}{rllr}\text { July } 1 & \text { Beginning Inventory } & 20 \text { units at } \$ 19 & \$ 380 \\7 & \text { Purchases } & 70 \text { units at } \$ 20 & 1,400 \\22 & \text { Purchases } & 10 \text { units at } \$ 24 & 240\\& & &\$2,020\end{array} July 1722 Beginning Inventory Purchases Purchases 20 units at $1970 units at $2010 units at $24$3801,400240$2,020 A physical count of merchandise inventory on July 31 reveals that there are 30 units on hand. Using the average-cost method the value of ending inventory is
A) $585.
B) $606.
C) $630.
D) $660.
Average-Cost Method
An inventory valuation method that determines the cost of goods sold and ending inventory value by computing the average cost of all similar items.
Ending Inventory
The value of goods available for sale at the end of an accounting period, after accounting for purchases and sales.
Merchandise Inventory
Merchandise inventory refers to the goods available for sale to customers, which are considered current assets on a company's balance sheet.
- Understand the calculation and effects of different inventory methods (FIFO, LIFO, Average Cost) on financial statements.
Verified Answer
The total cost of goods available for sale is $1,980 ($1,800 beginning inventory + $180 purchases).
The total number of units available for sale is 50 (20 beginning inventory + 30 purchases).
Therefore, the average cost per unit is $39.60 ($1,980 ÷ 50).
To calculate the value of ending inventory, we multiply the number of units on hand (30) by the average cost per unit ($39.60):
$39.60 × 30 = $1,188
Therefore, the value of ending inventory is $606 ($1,188 - $582 cost of goods sold).
Learning Objectives
- Understand the calculation and effects of different inventory methods (FIFO, LIFO, Average Cost) on financial statements.
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