A company just starting a business purchased three inventory items at the following prices: March 2, $150; March 7, $160; and March 15, $180.If the company sold one unit for $230 on March 10 and one unit for $250 on March 20 and uses the average cost formula in a perpetual inventory system, what is the cost of ending inventory?
A)$163.34
B)$167.50
C)$180.00
D)$250.00

Question

Quizplus · Accepted Answer

The average cost per unit after each purchase is calculated by dividing the total cost of inventory by the total number of units. Initially, the company has 3 units costing a total of $150 + $160 + $180 = $490. The average cost per unit is $490 / 3 = $163.33 (repeating). After selling one unit on March 10, two units remain. The cost of goods sold for this unit is based on the average cost at the time of sale, which is $163.33. The ending inventory, after selling another unit on March 20, consists of one unit. The cost of this remaining unit is still based on the average cost, which remains $163.33, but for simplicity and rounding in financial reporting, it might be rounded to $163.34 or kept as $163.33 depending on the company's rounding policy. However, the correct answer based on the average cost calculation is $163.33, which is not an option here, indicating a need for clarification. Given the options, the closest to the calculated average cost is $167.50, but this does not directly follow from the provided calculations. The correct calculation based on the information should lead to an average cost of $163.33 for the ending inventory, but due to rounding or a possible mistake in the options provided, there seems to be a discrepancy.

A Company Just Starting a Business Purchased Three Inventory Items