Question

The following lots of a particular commodity were available for sale during the year:Beginning inventory 5 units at $61First purchase 15 units at $63Second purchase 10 units at $74Third purchase 10 units at $77The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year.What is the amount of cost of good sold for the year according to the average cost method?

$1,380$1,375$1,510$1,250

Answer 1

$1,380

Step-by-step explanation:

The computation of the average cost per unit is shown below:

= (Beginning inventory units × price per unit + first purchase inventory units × price per unit + second purchase inventory units × price per unit + third purchase inventory units × price per unit) ÷ (Beginning inventory units + first purchase inventory units + second purchase inventory units + third purchase inventory units)

= (5 units × $61 + 15 units × $63 + 10 units × $74 + 10 units × $77) ÷ (5 units + 15 units + 10 units + 10 units)

= ($305 + $945 + $740 + $770 ) ÷ (40 units)

= ($2,760 units) ÷ (40 units)

= $69

Now the cost of goods sold equals to

= (Inventory units × average cost per unit )

= 20 units × $69 per unit

= $1,380

Since there are total 40 units out of which 20 units are sold, so the remaining units i.e 20 units would be consider as cost of goods sold