Question

To compare the different inventory valuation methods, consider the following fictional company preparing a semi-annual balance sheet. Each month 100 units of a raw material is purchased, but the price goes up each period. At the end of six months, the company takes a physical count and sees that 300 units are left and 300 units have been consumed.

Units Cost per Unit Cost
January 100 $10 $1,000
February 100 $11 $1,100
March 100 $12 $1,200
April 100 $13 $1,300
May 100 $14 $1,400
June 100 $15 $1,500
In total, 600 units have been purchased at an average price of___________ for a total cost of_________.

Answer 1

In total, 600 units have been purchased at an average price of $12.50 for a total cost of $7,500.

Step-by-step explanation:

total cost of the 600 units = $1,000 + $1,100 + $1,200 + $1,300 + $1,400 + $1,500 = $7,500

average price per chair = $7,500 / 600 = $12.50

this inventory valuation method is called the weighted average method, and it assigns the same cost regardless of when the units were purchased.