Question

Palmer Company's beginning inventory consists of 1,000 units at $1.00 per unit. During the year, the company purchases 5,000 units costing a total of $5,800. At the end of the accounting period, Palmer still has 1,000 units on hand.

If Palmer uses the weighted average cost method, its cost of goods sold (rounded to the nearest dollar) will be:

a.$5,667.

b.$5,800.

c.$1,133.

d.$6,000

e.$1,000

Answer 1

a.$5,667

Step-by-step explanation:

According to the weighted average cost method, all units on inventory must be priced equally. If the company had 1,000 units at $1.00 and purchased an additional 5,000 units for $5,800, the total cost per unit is:

`C=(\$1.00*1,000+\$5,800)/(5,000+1,000)\\ C=\$1.1333333`

If 5,000 units were sold, the cost of goods sold is:

`S = \$1.1333333*5,000\\S=\$5,667`

Palmer Company's cost of goods sold was $5,667.