Question

1. In its first month of operations, Pharoah Company made three purchases of merchandise in the following sequence: (1) 155 units at $10, (2) 560 units at $11, and (3) 135 units at $12.

a. Calculate the average unit cost.

2. In its first month of operations, Wildhorse Co. made three purchases of merchandise in the following sequence: (1) 190 units at $10, (2) 540 units at $11, and (3) 100 units at $12.

a. Calculate the average unit cost.

b. Compute the cost of the ending inventory under the average-cost method, assuming there are 270 units on hand.

3. At December 31, 2019, the following information was available for Pina Colada Corp.: ending inventory $38,250, beginning inventory $58,500, cost of goods sold $273,000, and sales revenue $366,000.

a. Calculate days in inventory for Pina Colada Corp..

Answer 1

1) Calculate average unit cost :

	Unit	Unit Cost	Total Cost
Purchase 1	155	10	1550
Purchase 2	560	11	6160
Purchase 3	135	12	1620
Total	850		9330

Average unit cost = 9330/850 = $10.98

2) Calculate following :

	Unit	Unit Cost	Total Cost
Purchase 1	190	10	1900
Purchase 2	540	11	5940
Purchase 3	100	12	1200
TOtal	830		9040

a) Average unit cost = 9040/830 = $10.89

b) Ending inventory = 10.89*270 = $2941

3) Average inventory = (38250+58500/2) = 48375

Days in inventory = Average inventory*365/Cost of goods sold

= 48375*365/273000

Days in inventory = 64.68 Days Or 64.7 Days