The firm had a beginning inventory of 50 units with a unit cost of $10. Purchases during the year were as follows: March-50 units with a unit cost of $12; July-60 units with a unit cost of $15. If the average cost method is used, the value of the ending inventory of 45 units is

Question

Quizplus · Accepted Answer

Using the average cost method, we calculate the weighted average cost per unit as follows:

Beginning inventory: 50 units x $10 per unit = $500
March purchase: 50 units x $12 per unit = $600
July purchase: 60 units x $15 per unit = $900
Total cost: $500 + $600 + $900 = $2000

Total units: 50 + 50 + 60 = 160 units

Weighted average cost per unit: $2000 ÷ 160 units = $12.50 per unit

To calculate the value of ending inventory, we multiply the number of units in ending inventory by the weighted average cost per unit:

45 units x $12.50 per unit = $562.50

Therefore, the value of the ending inventory of 45 units is $563 (rounded to the nearest dollar). The correct answer is B.

The Firm Had a Beginning Inventory of 50 Units with a Unit