Balotelli Co. had 3,000 units in its inventory on January 1, 2010. The unit cost of...

Balotelli Co. had 3,000 units in its inventory on January 1, 2010. The unit cost of goods in the beginning inventory is $9.77. Balotelli purchased 2,000 units on January 6 and 2,700 units on January 26. The unit costs for January 6 and January 26 purchases are $10.30 and $10.71, respectively. Balotelli sells 2,500 units on January 7 and 4,000 units on January 31. Assuming that Balotelli maintains periodic inventory records, what should be the inventory at January 31, using the average cost inventory method, rounded to the nearest dollar?

Answer is $12,284. Please show me how to get that answer.

Expert Solution

Under average cost system of inventory valuation, cost per unit of inventory remaining in balance is the average of cost of all inventory which was there in the past

The following table shows the calculations :

Since periodic inventory system is followed, running value of inventory will not be calculated and sales units will be deducted in total to arrive at ending inventory

Average cost of total units purchased and opening inventory

= Total cost / Total units

= $78,827 / 7,700

= $10.237273 per unit

Calculations		A	B	C = A x B
Date	Particulars	Units	Average cost per unit	Total cost
January 1 2010	Opening Inventory	3000	9.770000	29310
January 6 2010	Purchases	2000	10.300000	20600
January 26 2010	Purchases	2700	10.710000	28917
	Total Inventory	7700	10.237273	78827
January 7 2010	Sales	-2500
January 31 2010	Sales	-4000
January 31 2010	Closing inventory	1200	10.237273	12284.73

So, value of closing inventory on hand after deduction of sales from opening inventory and purchases

= Units remaining x Average cost of opening units and purchases

= 1,200 x $10.237273

= $12,284

ekkarill92 answered 2 years ago

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