Question

Davidson Electronics has the following: Units Unit Cost Inventory, Jan. 1 5,000 $ 8 Purchase, April 2 15,000 10 Purchase, Aug. 28 20,000 12 If Davidson has 7,000 units on hand at December 31, the cost of ending inventory under the average-cost method is: Select one: a. $84,000. b. $70,000. c. $56,000. d. $75,250.

Answer 1

Answer:

Option (d) $75,250

Explanation:

Data provided in the question:

                                   Units                  Unit Cost          

Inventory, Jan. 1        5,000                     $8

Purchase, April 2      15,000                    $10

Purchase, Aug. 28    20,000                   $12

Units on hand = 7,000

Now,

Total cost of the inventory

= ( 5,000 × $8 ) + ( 15,000 × $10 ) + ( 20,000 × $12 )

= $40,000 + $150,000 + $240,000

= $430,000

Therefore,

Average cost of the inventory = [ Total cost of the inventory ] ÷ [ Total units ]

= $430,000 ÷ ( 5,000 + 15,000 + 20,000 )

= $430,000 ÷ 40,000

= $10.75 per unit

Thus,

Cost of ending inventory = Units on hand × Average cost of the inventory

= 7,000 × $10.75

= $75,250

Option (d) $75,250