Question

In: Accounting

Dec. 31 Ending inventory q:145 selling price:19 Jan. 2 Purchase q:90 selling price:21 Jan. 6 Sale...

Dec. 31 Ending inventory q:145 selling price:19

Jan. 2 Purchase q:90 selling price:21

Jan. 6 Sale q:166 seling price:43

Jan. 9 Purchase q:75 selling price:23

Jan. 10 Sale q:52 Selling price:48

Jan. 23 Purchase q:94 selling price:24
Jan. 30 Sale q:143 selling price:51

calculate average cost for each unit

Solutions

Expert Solution

SOLUTION =

WE ASSUME THAT ENTITY ELECT TO USE THE WEIGHTED AVERAGE COST METHOD

CALCULATION OF WEIGHTED AVERAGE COST PER UNIT FOR MONTH OF JANUARY

PARTICULARS

 CHANGE IN QUANTITY UNIT COST TOTAL ACTUAL COST(CHANGE IN QUANTITY*COST / UNIT)
BEGINNING INVENTORY 145 19 2,755
PURCHASE (JAN 2) 90 21 1,890
SALE ( JAN 6) -166 - -
PURCHASE (JAN 9) 75 23 1,725
SALE (JAN 10) -52 - -
PURCHASE (JAN 23) 94 24 2,256
SALE ( JAN 30) -143 - -
TOTAL 43 8,626

AS PER TABLE TOTAL NUMBER OF UNITS = OPENING INVENTORY + PURCHASE =145+259 = 404

TOTAL COST = 8,626

WEIGHTED AVERAGE COST PER UNIT = TOTAL COST/NUMBER OF UNITS PURCHASED

= 8,626/404 = 21.35/UNIT

VALUATION OF ENDING INVENTORY = ENDING INVENTORY * AVERAGE COST / UNIT

=43*21.35 = 918.05

IF THE ENTITY USING PERPECTUAL INVENTORY SYSTEM WE WOULD HAVE TO RECOMPUTE THE WEIGHTED AVERAGE COST AFTER EVERY TRANSACTION AS BELOW >

PARTICULAR QUANTITY QUANTITY WITH US PURCHSE COST OF SALES TOTAL COST OF INVENTORY INVENTORY MOVING AVG. UNIT COST
BEGINNING INVENTORY 145 145 - - 145*19=2,755 19
PURCHASE 90 235 1,890 - 2,755+1890=4,645 4,645/235=19.76
SALE 166 69 166*19.76=3280.16 4645-3280.16=1364.84 1364.84/69=19.78
PURCHASE 75 144 1725 1725+1364.84=3089.84 3089.84/144=21.45
SALE 52 92 52*21.45=1115.4 3089.84-1115.4=1974.44 1974.44/92=21.45
PURCHASE 94 186 2256 2256+1974.44=4230.44 4230.44/186=22.74
SALE 143 43 143*22.74=3,251.82 4230.44-3251.82=978.59 978.59/43=22.74
TOTAL 5871 7647.38

WE CAN SEE THAT COST OF GOODS SOLD + INVENTORY BALANCE (7647.38+978.59) = 8,625.97 IS SAME AS LAST TABLE 8626 ( ROUNDING OFF DIFFERENCE) BUT MOVING WEIGHTED AVERAGE CALCULATIONS ARE SLIGHTLY DIFFERENT.

ekkarill92 answered 1 year ago
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