In: Accounting
| 
 Beginning inventory on January 1  | 
 100 units  | 
 at  | 
 $  | 
 2,800  | 
 per unit  | 
| 
 Purchase on March 1  | 
 400 units  | 
 at  | 
 $  | 
 3,000  | 
 per unit  | 
| 
 Purchase on September 1  | 
 800 units  | 
 at  | 
 $  | 
 3,200  | 
 per unit  | 
Sales for the year totaled 1,000 units, leaving 300 units on hand
at the end of the year. The company reported ending inventory for
$900,000. Which of the following is correct?
Solution: Option A. is the correct choice. The amount reported for ending inventory is incorrect because management used a simple average instead of weighted-average to calculate the unit cost of inventory for the year.
Here is the calculations to reach correct amount of
ending inventory using periodic average cost method:
Note: While company used simple average to compute ending inventory which is incorrect. Company's incorrect calculations are as follows:
Incorrect ending inventory = 300×($2,800+ 3,000 + 3,200)/ 3
= 300 × $3,000 = $900,000 ( incorrect)