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Chapter 7 Homework Assignment (part 1)

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Weighted Average Cost Flow Method Under Perpetual Inventory System

The following units of a particular item were available for sale during the calendar year:

Jan. 1	Inventory	30,000	units at $30.00
Mar. 18	Sale	24,000	units
May 2	Purchase	54,000	units at $31.00
Aug. 9	Sale	45,000	units
Oct. 20	Purchase	21,000	units at $32.10

The firm uses the weighted average cost method with a perpetual inventory system. Determine the cost of merchandise sold for each sale and the inventory balance after each sale. Present the data in the form illustrated in Exhibit 5. Round unit cost to two decimal places, if necessary.

Schedule of Cost of Merchandise Sold Weighted Average Cost Flow Method
	Purchases			Cost of Merchandise Sold			Inventory
Date	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
Jan. 1								$	$
Mar. 18					$	$
May 2		$	$
Aug. 9
Oct. 20
Dec. 31	Balances					$		$	$

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Answer 1

Schedule of Cost of Merchandise Sold
Weighted Average Cost Flow Method
	Purchases			Cost of Merchandise Sold			Inventory
Date	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
Jan. 1							30,000	30	900000
Mar. 18				24000	30	720000	6,000	30	180000
2-May	54,000	31	1674000				60,000	30.9	1854000
Aug. 9				45000	30.9	1390500	15,000	30.9	463500
Oct. 20	21,000	32.1	674100				36,000	31.6	1137600
Dec. 31	Balances					2110500	36,000	32	1137600

Working notes for the above answer is as under

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2

Note:

Under the weighted average method the average unit cost must be determined after each purchase by dividing the total of cost of merchandise on hand by the total units on hand.

The cost of merchandise sold is computed multiplying the average unit cost on the date of sales by the units sold. The inventory balance after a sale is then computed by multiplying the average unit cost by the units on hand