Question

Chris Company uses the perpetual inventory system and had the following activity during the current monthly period.

November 1:             Beginning Inventory of 100 units @$20

November 5:              Purchased 100 units @ $22

November 8:              Purchased 50 units @$23

November 16:            Sold 200 units @ $45

November 19:            Purchased 50 units @ $25

Using the weighted-average inventory method, the company's ending inventory would be reported at:

A)   $2,200.

B) $2,320.

C) $2,250.

D) $2,400.

E) $2,270.

The answer is B but I need a detailed explanation because I do not understand this at all.

Answer 1

We need to understand the following table first:

Weighted average	Purchase			Issue			Balance			Sales Revenue & Profit
Date	Unit	Rate	Amount	Unit	Rate	Amount	Unit	Rate	Amount	Unit	Rate	Sales Revenue	Profit
01-Nov	100	20	2000				100	20	2000
05-Nov	100	22	2200				200	21	4200	0	225	0	0
08-Nov	50	23	1150				250	21.4	5350
16-Nov				200	21.4	4280	50	21.4	1070	200	45	9000	4720
19-Nov	50	25	1250				100	23.2	2320
Total	300		6600	200		4280	100		2320			9000	4720

1. On 1st nov, the opening balance is given as 100 units @20
2. On 5th nov, we purchase 100 more units @22, therefore the balance would be 200 units and the cost of these is 100x20+100x22 = 4200, therefore the weighted average cost per unit = 4200/200= 21
3. On 8th nov, we purchase 50 more units @23, therefore the balance would be 250 units and the cost of these is 100x20+100x22 +50 x23 = 5350, therefore the weighted average cost per unit = 5350/250= 21.40
4. On 16th nov, we sell 200 more units the cost of which is 21.40, therefore the balance after the sale would be 250 -200 =50units and the weighted average cost per unit = 21.40
5. The sale price was 45 per unit therefore the profit is (45-21.40) x 200 = 4720
6. On 19th nov, we purchase 50 more units @25, therefore the balance would be 100 units and the cost of these is 50x21.40+50x25 = 2320, therefore the weighted average cost per unit = 2320/100= 23.20
7. Therefore the correct answer is B