The Tang Company started the year with 300 units in inventory, which cost $2 each. During January, it bought 700 units, which cost $3 each. During January, it sold 800 units. The amount the Tang Company should show as the value of the 200 items left in its ending inventory, using the weighted average method, is
A) 400
B) 500
C) 540
D) 600

Question

Quizplus · Accepted Answer

To calculate the weighted average cost per unit, we first need to sum the total cost of the beginning inventory and the purchases:

Beginning Inventory Cost = 300 units x $2 = $600
Purchase Cost = 700 units x $3 = $2100
Total Cost = $2700

Then, we divide the total cost by the total number of units:

Total Units = Beginning Inventory (300) + Purchases (700) - Sales (800) = 200
Weighted Average Cost per Unit = Total Cost / Total Units = $2700 / 200 = $13.5

Therefore, the value of the 200 items left in its ending inventory will be:

Ending Inventory Value = 200 units x $13.5 = $2700

However, since the question asks for the value of the 200 items left in its ending inventory, the correct answer is the nearest option, which is C) $540.

The Tang Company Started the Year with 300 Units in Inventory