Question

Stewart Company uses the perpetual inventory method. On January 1, 2011, Stewart purchased 400 units of inventory that cost $2.00 each. On January 10, 2011, the company purchased an additional 600 units of inventory that cost $2.25 each. If Stewart uses a weighted average cost flow method and sells 700 units of inventory, the amount of ending inventory reported on the balance sheet will be:

Answer 1

Answer:

Amount of ending inventory = 300 units x 2.15 = $645

Explanation:

The question says to amount of closing inventory based on the Weighted average cost flow method.

The weighted average cost method of valuation divides the Cost of Goods Available with the number of available units to generated the cost per unit.

Therefore,

                                                              Unit       Cost per unit         Total

Inventory Purchased on Jan, 1            400             2                      $800

Inventory Purchased Jan, 10               600             2.25                $1,350

The total Cost                                      1,000                                   $2,150

The weighted Average cost per unit = Total cost/ the Total Units

The total cost is $2,150 and total units is 100 units

WAC per unit= $2,150/1,000

= $2.15

The next step is to use the WACC per unit to determine the closing inventory

Since 700 units were sold , out of 1000

Closing inventory = 1,000-700 = 300 units

Amount of ending inventory = 300 units x 2.15 = $645