Final answer:
The inventory costing method that uses the weighted average of the cost of goods available for sale is known as the Weighted Average Cost Method. This approach accounts for the cost of items based on both price and volume purchased, providing an averaged cost per unit for items sold and in inventory.
Step-by-step explanation:
Understanding Inventory Costing
The inventory costing method referred to in the question that uses the weighted average of the cost of goods available for sale for calculating both the cost of each item and the costs of items remaining in inventory is known as the Weighted Average Cost Method. This method takes into account the prices of the items and the actual volumes purchased to provide a fair assessment of inventory costs. The weighted average cost is calculated by taking the total cost of goods available for sale and dividing it by the total number of units available for sale, resulting in a per-unit cost figure. This figure is then applied to each unit sold and to the units remaining in inventory to determine the cost of goods sold (COGS) and the closing inventory value.
For example, if a company has 100 units at a cost of $5 each and buys another 100 units at $7 each, the total cost of goods available is (100*$5 + 100*$7) = $1200. If they have 200 units in total, the weighted average cost per unit would be $1200/200 = $6. This $6 per unit is the cost attributed to each item sold and remaining in inventory.