Question

Noise Makers Inc. has the following inventory data: July 1 Beginning inventory 30 units at $19 $ 570 7 Purchases 105 units at $20 2,100 22 Purchases 15 units at $22 330 $3,000 A physical count of merchandise inventory on July 30 reveals that there are 48 units on hand. Using the average cost method, the value of ending inventory is

Answer 1

Closing inventory is 48 units which are valued at $960.00

Step-by-step explanation:

Average cost method also known as weighted average price is a type of stock valuamethod whereby the issue price is recalculated to get the weighted average price After each receipt. This particular type of method is simple to apply and it is acceptable to tax authorities. Since it is the weighted average of the purchase price, it is based on actual costs and does not lead to unrealized profit or loss. This method is not an actual buying cost.

The formula for calculating the ending inventory is Cost of Goods Available for Sale ÷ Number of goods available (Number of goods from the beginning inventory + purchases). The formula for calculating the Cost of Goods Available for Sale is Sum of beginning inventory + Net purchases. Net purchases refers to the sum total of all purchases. Now the question can be solved.

Cost of goods available for sale = (30 units × $19) + ( 105 units × $20) + (15 units × $22) = $3,000 - This is the cost of goods available for sale.

For the closing inventory, Cost of goods available for sale ÷ Number of units available fo sale(sum of beginning inventory + purchases)

So, $3,000 ÷ 150 units = $20.00

48 units were on hand at the end of the year. So, the closing inventory is 48 units and its value is $960.00(48 units × $20.00).

Answer 2

The value of ending inventory is $1,910.4

Step-by-step explanation:

In this question, we are asked to calculate the value of ending inventory, using the average cost method.

According to its name, what the average cost method does is to assign a cost to an inventory item by dividing the total cost of the inventory items by the number of inventory items.

Mathematically, we use the method to solve this particular question at hand as follows;

this

Average cost per unit = (Cost of beginning inventory + Cost of inventory purchased)/(beginning inventory + inventory purchased)

Average cost per unit = (570+2,100+330)/(30+105+15) = 5970/150 = 39.8 per unit

Value of ending inventory = $39.8 * 48 = $1,910.4