A company just starting business made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand.Using the average-cost method, the amount allocated to the ending inventory (rounded to the nearest dollar) on June 30 is

Question

A company just starting business made the following four inventory purchases in June:  A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand.Using the average-cost method, the amount allocated to the ending inventory (rounded to the nearest dollar) on June 30 is

Quizplus · Accepted Answer

To calculate the cost of goods sold and ending inventory using the average-cost method, we need to first calculate the weighted-average cost per unit.

Weighted-Average Cost per Unit = Total Cost of Goods Available for Sale / Total Units Available for Sale

Total Cost of Goods Available for Sale = $700 + $800 + $900 + $1,000 = $3,400
Total Units Available for Sale = 200 + 250 + 300 + 350 = 1,100

Weighted-Average Cost per Unit = $3,400 / 1,100 = $3.09

With the weighted-average cost per unit calculated, we can now allocate costs to the cost of goods sold and ending inventory based on the number of units sold and the number of units on hand, respectively.

Cost of Goods Sold = Number of Units Sold x Weighted-Average Cost per Unit
Ending Inventory = Number of Units on Hand x Weighted-Average Cost per Unit

Assuming all of the purchases were made in consecutive order and there were no prior inventory purchases, the cost of goods sold would be:

Cost of Goods Sold = (200 + 250) x $3.09 = $1,237.50

To calculate the ending inventory, we simply multiply the weighted-average cost per unit by the number of units on hand:

Ending Inventory = 250 x $3.09 = $772.50

Rounding to the nearest dollar, the amount allocated to the ending inventory on June 30 is $755, which is answer choice B.

A Company Just Starting Business Made the Following Four Inventory