Question

Assume Jones Manufacturing begins January with 10 units of inventory that cost $10 each. During January, the following purchases and goods sold were: Jan 5 Purchased 8 units at $11. Jan 7, Sold 11 units. What is the weighted average cost per unit in the perpetual system at the time the 11 units are sold on January 7?

Answer 1

10.44

Explanation:

The weighted average cost per unit method seeks to get the cost of goods sold as an average of all cost of goods in the inventory as at the time of sales.

Part of its objective is to strike a balance between the (FIFO and LIFO) inventory valuation methods.

Beginning inventory ( Jan) = 10 units

Cost of beginning inventory per unit = $10

Total cost of beginning inventory = Cost * Number of units

In this case (10*$10) = $100

Additional purchase (Jan 5) = 8 units

Cost of additional purchase per unit = $11

Total cost of additional purchase = 8 * $11 = $88

Weighted average cost per unit at the time 11 units are sold on January 7 = Total cost of units at that time / number of units available at that time.

= ($100+ $88) / (10+8)

= 188/18

=10.44 (approximated to 2 decimal places)

I hope this helps make the concept clear.