A company just starting business made the following four inventory purchases in June: $$\begin{array} { r r r r }
\text { June } & 1 & 150 \text { units } & \$ 390 \
\text { June } & 10 & 200 \text { units } & 598 \
\text { June } & 15 & 200 \text { units } & 630 \
\text { June } &28 & 150 \text { units } & \underline { 510 } \
& & & \underline { \$ 2,128 }
\end{array}$$ A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the average-cost method the amount allocated to the ending inventory on June 30 is

Question

A company just starting business made the following four inventory purchases in June: $$\begin{array} { r r r r } 
\text { June } & 1 & 150 \text { units } & \$ 390 \
\text { June } & 10 & 200 \text { units } & 598 \
\text { June } & 15 & 200 \text { units } & 630 \
\text { June } &28 & 150 \text { units } & \underline { 510 } \
& & & \underline { \$ 2,128 }
\end{array}$$ A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the average-cost method the amount allocated to the ending inventory on June 30 is

Quizplus · Accepted Answer

To use the average-cost method, we need to find the weighted-average cost per unit.

Weighted-average cost per unit = (Total cost of inventory purchased / Total number of units purchased)

Total cost of inventory purchased = (100 units x $5) + (200 units x $6) + (50 units x $7) + (50 units x $8) 
= $500 + $1200 + $350 + $400 
= $2450

Total number of units purchased = 100 + 200 + 50 + 50 
= 400

Weighted-average cost per unit = $2450 / 400 
= $6.125

Therefore, the ending inventory cost can be calculated as:

Ending inventory cost = Weighted-average cost per unit x Number of units on hand 
= $6.125 x 200 
= $1225

However, we need to remember that this is the cost allocated to the ending inventory, not the cost of goods sold. The cost of goods sold is calculated as follows:

Cost of goods sold = (Total cost of inventory purchased - Cost allocated to ending inventory) 
= ($2450 - $1225) 
= $1225

Therefore, the answer is B ($608).

A Company Just Starting Business Made the Following Four Inventory