Question

Monarch Company uses a weighted-average perpetual inventory system, and has the following purchases and sales: January 1 20 units were purchased at $10 per unit. January 12 12 units were sold. January 20 18 units were purchased at $11 per unit. What is the value of ending inventory? (Round average cost per unit to 2 decimal places and final answer to the nearest dollar.)

Answer 1

Answer:

Ending inventory = $278

Weighted average price = $ 10.69.

Explanation:

Weighted Average Method  is used to make an inventory valuation, taking average values for both the merchandise in stock and for the costs of merchandise sold.

Like FIFO and LIFO, it is also a method that is used in the permanent inventory system.

Below is the calculation method for the value of ending inventory (see spreadsheet attached).

1) For the first purchase, we indicate the amount purchased (Quantity), the unit purchase price (Rate) and the total paid (Amount), that is, 20 units at $10 each = $200. Since there are no previous stocks, we repeat these values in the Stock column.

2) For the first sale we deduct from the stock 12 units at the average price and therefore 8 units remain at the average Price.  

Then, in the Output column we indicate the quantity we sell (12 units), the unit price (which is the average price of the Stock column) and the total (the multiplication of the quantity sold by the unit cost).

3) In stock we indicate that we have 8 units left at $10 each, totaling $80. The cost of the merchandise sold is $ 120 (the total that appears in the column of Outputs).

4) For the next purchase we complete the values in the Inputs column, that is 18 units at $ 11 each, totaling $198.

5) Then we complete the Stock column as follows: we add the current total stock value ($ 80) plus the new value ($ 198). That gives a total of $ 278.  

6) Then we indicate the new amount we have in stock (26 units that are obtained by adding the 8 we had with the 18 that enter).

7) Finally we divide the total value of the stock ($ 278) over the amount of the same (26 units), obtaining a weighted average price of $ 10.69.

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