Question

Shown below is activity for one of the products of Denver Office Equipment:

January 1 balance, 630 units @ $55 $34,650
Purchases:
January 10:	630 units @ $60
January 20:	1,260 units @ $62
Sales:
January 12:	900 units
January 28:	770 units

Required:

Compute the January 31 ending inventory and cost of goods sold for January, assuming Denver uses average cost and a periodic inventory system.

Answer 1

In a periodic inventory system all transaction relating to the inventories are updated at the end of a particular period.

Here, in weighted average periodic inventory system we will first calculate the average cost per unit of all the goods available for sale for the month of January and then from that average cost per unit we will calculate the cost of goods sold and the cost ending inventory

	Units	Cost
Opening balance on January 1	630	$34,650
Purchases on January 10	630	$37,800 [ 630 units * $60 ]
Purchases on January 20	1,260	$78,120 [ 1,260 units * 62 ]
Goods available for sale	2,520	$150,570

Average cost per unit = Cost of goods available for sale / Units available for sale = $150,570 / 2,520 units = $59.75 per unit

Units sold = 900 + 770 = 1,670 units

Units in ending inventory = Units available for sale - Units sold = 2,520 - 1,670 = 850 units

Cost of goods sold = Units sold * Average cost per unit = 1,670 units * $59.75 per unit = $99,782.5

Cost of ending inventory = Units in ending inventory * Average cost per unit = 850 units * $59.75 per unit = $50,787.5