Question

The following units of an inventory item were available for sale during the year:Beginning inventory 10 units at $55First purchase 25 units at $60Second purchase 30 units at $65Third purchase 15 units at $70The firm uses the periodic inventory system. During the year, 60 units of the item were sold.The value of ending inventory using average cost is:
$1,353$1,263$1,375$1,150

Answer 1

Answer:

$1263

Explanation:

Given: Beginning inventory 10 units at $55

           First purchase 25 units at $60

           Second purchase 30 units at $65

           Third purchase 15 units at $70.

First, finding Total cost of available inventory to know weighted average cost.

Total cost= $Units\ available \times cost\ per\ unit$

∴ Beginning inventory=  $10\ units\times \ 55= \ 550$

           First purchase=  $25\ units\times \ 60= \ 1500$

           Second purchase=  $30\ units\times \ 65= \ 1950$

           Third purchase = $15\ units\times \ 70= \ 1050$.

Total units available for sale= $10+25+30+15= 80\ units$

Total cost of available inventory= $\ 550+\ 1500+ \ 1950+\ 1050= \ 5050$

Now, finding Weighted average cost.

Weighted average cost= $\frac{Total\ cost\ of\ available\ inventory}{Total\ units}$

Weighted average cost= $\frac{\ 5050}{80\ units} = \ 63.125.$

∴ Weighted average cost= $ 63.125.

As given, 60 units sold during the year, which mean 20 units is still remaining out of total 80 units.

The value of ending inventory= $units\ remaining\times Weighted \ average\ cost$

∴ The value of ending inventory= $20\ units \times \ 63.125= \ 1262.5 \approx \ 1263$

∴ The value of ending inventory using average cost is $1263