Hopewell Ltd.had 1,000 units of inventory on hand at the beginning of the year worth $4,000.During the year, they purchased 15,000 units at $4.25 and 10,000 units at $4.40.They sold 24,500 units during the year.If Hopewell uses the average cost assumption for inventory valuation, what would their ending inventory value at year-end be closest to?

Question

Quizplus · Accepted Answer

To calculate the ending inventory value using the average cost method, first, find the total cost of all units and divide by the total number of units to find the average cost per unit. Then, multiply the average cost per unit by the number of units left in inventory at year-end.Total cost of beginning inventory: 1,000 units * $4.00 = $4,000Total cost of purchases: (15,000 units * $4.25) + (10,000 units * $4.40) = $63,750 + $44,000 = $107,750Total cost of all units: $4,000 (beginning inventory) + $107,750 (purchases) = $111,750Total units available for sale: 1,000 (beginning inventory) + 15,000 + 10,000 = 26,000 unitsAverage cost per unit: $111,750 / 26,000 units = $4.2981 approximatelyUnits sold: 24,500 unitsEnding inventory units: 26,000 units - 24,500 units = 1,500 unitsEnding inventory value: 1,500 units * $4.2981 (average cost per unit) ≈ $6,447Therefore, the closest value for the ending inventory at year-end using the average cost assumption is approximately $6,447.