Question

The following units of an inventory item were available for sale during the year:Beginning inventory 7 units at $51First purchase 17 units at $53Second purchase 28 units at $54Third purchase 16 units at $55The firm uses the periodic inventory system. During the year, 21 units of the item were sold.The value of ending inventory rounded to the nearest dollar using average cost is (Round average cost per unit to three decimal place.)a.$1,099b.$1,150c.$2,523d.$1,071

Answer 1

The value of ending inventory rounded to the nearest dollar using average cost is c.$2,523

Step-by-step explanation:

The firm uses average cost method and the periodic inventory system.

Average cost = Total Cost of Inventory /Total Units in Inventory

1. Beginning inventory: 7 units at $51, total cost $357

2. First purchase: 17 units at $53, total cost $901

3. Second purchase: 28 units at $54, total cost $1,512

4. Third purchase: 16 units at $55, total cost $880

Total perchase in the period: 61 unit, total cost $3,293

Average cost = ($3,293 + $357)/(61 + 7) = $3,650/68 = $53.676 per unit

During the year, 21 units of the item were sold,

Cost of goods sold = 21 x $53.676 = $1,127.196

The value of ending inventory = $357 + $3,293 - $1,127.196 = $2,522.804

Rounding, The value of ending inventory = $2,523