Asked by Rheanna Chase on May 08, 2024
Verified
A company just starting business made the following four inventory purchases in June: June 1150 units $390 June 10200 units 598 June 15200 units 630 June 28150 units 510‾$2,128‾\begin{array} { r r r r } \text { June } & 1 & 150 \text { units } & \$ 390 \\\text { June } & 10 & 200 \text { units } & 598 \\\text { June } & 15 & 200 \text { units } & 630 \\\text { June } &28 & 150 \text { units } & \underline { 510 } \\& & & \underline { \$ 2,128 }\end{array} June June June June 1101528150 units 200 units 200 units 150 units $390598630510$2,128 A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the average-cost method the amount allocated to the ending inventory on June 30 is
A) $540.
B) $608.
C) $668.
D) $1520.
Average-Cost Method
An inventory costing method where the cost of goods sold and ending inventory are calculated using the average cost of all units available for sale during the period.
Merchandise Inventory
Goods and products held by a business for the purpose of resale to customers, forming a key current asset on the balance sheet.
- Employ different methods for inventory valuation, including FIFO, LIFO, and Weighted Average, to determine the expenses relating to inventory, elucidating the cost of goods sold and ending inventory levels.
Verified Answer
TF
Taylor FlookMay 14, 2024
Final Answer :
B
Explanation :
To use the average-cost method, we need to find the weighted-average cost per unit.
Weighted-average cost per unit = (Total cost of inventory purchased / Total number of units purchased)
Total cost of inventory purchased = (100 units x $5) + (200 units x $6) + (50 units x $7) + (50 units x $8)
= $500 + $1200 + $350 + $400
= $2450
Total number of units purchased = 100 + 200 + 50 + 50
= 400
Weighted-average cost per unit = $2450 / 400
= $6.125
Therefore, the ending inventory cost can be calculated as:
Ending inventory cost = Weighted-average cost per unit x Number of units on hand
= $6.125 x 200
= $1225
However, we need to remember that this is the cost allocated to the ending inventory, not the cost of goods sold. The cost of goods sold is calculated as follows:
Cost of goods sold = (Total cost of inventory purchased - Cost allocated to ending inventory)
= ($2450 - $1225)
= $1225
Therefore, the answer is B ($608).
Weighted-average cost per unit = (Total cost of inventory purchased / Total number of units purchased)
Total cost of inventory purchased = (100 units x $5) + (200 units x $6) + (50 units x $7) + (50 units x $8)
= $500 + $1200 + $350 + $400
= $2450
Total number of units purchased = 100 + 200 + 50 + 50
= 400
Weighted-average cost per unit = $2450 / 400
= $6.125
Therefore, the ending inventory cost can be calculated as:
Ending inventory cost = Weighted-average cost per unit x Number of units on hand
= $6.125 x 200
= $1225
However, we need to remember that this is the cost allocated to the ending inventory, not the cost of goods sold. The cost of goods sold is calculated as follows:
Cost of goods sold = (Total cost of inventory purchased - Cost allocated to ending inventory)
= ($2450 - $1225)
= $1225
Therefore, the answer is B ($608).
Learning Objectives
- Employ different methods for inventory valuation, including FIFO, LIFO, and Weighted Average, to determine the expenses relating to inventory, elucidating the cost of goods sold and ending inventory levels.
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