Question

The following units of an inventory item were available for sale during the year:Beginning inventory 10 units at $55First purchase 25 units at $60Second purchase 30 units at $65Third purchase 15 units at $70The firm uses the periodic inventory system. During the year, 60 units of the item were sold.The value of ending inventory using average cost is:

$1,353$1,263$1,375$1,150

Answer 1

$1263

Step-by-step explanation:

Given: Beginning inventory 10 units at $55

First purchase 25 units at $60

Second purchase 30 units at $65

Third purchase 15 units at $70.

First, finding Total cost of available inventory to know weighted average cost.

Total cost=
`Units\ available * cost\ per\ unit`

∴ Beginning inventory=
`10\ units* \$ 55= \$ 550`

First purchase=
`25\ units* \$ 60= \$ 1500`

Second purchase=
`30\ units* \$ 65= \$ 1950`

Third purchase =
`15\ units* \$ 70= \$ 1050`.

Total units available for sale=
`10+25+30+15= 80\ units`

Total cost of available inventory=
`\$550+\$ 1500+ \$ 1950+\$ 1050= \$ 5050`

Now, finding Weighted average cost.

Weighted average cost=
`(Total\ cost\ of\ available\ inventory)/(Total\ units)`

Weighted average cost=
`(\$ 5050)/(80\ units) = \$ 63.125.`

∴ Weighted average cost= $ 63.125.

As given, 60 units sold during the year, which mean 20 units is still remaining out of total 80 units.

The value of ending inventory=
`units\ remaining* Weighted \ average\ cost`

∴ The value of ending inventory=
`20\ units * \$ 63.125= \$ 1262.5 \approx \$ 1263`

∴ The value of ending inventory using average cost is $1263