Question

The following items of a particular commodity were available for sale during the year: Beginning inventory 10 units at $61 First purchase 25 units at $63 Second purchase 30 units at $64 Third purchase 15 units at $73 The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of the inventory at the end of the year according to the AVERAGE COST method

Answer 1

Amount of the inventory at the end of the year is $1300

Explanation:

Inventory value = cost * No. of units

• The beginning inventory 10 units at $61
• The beginning Inventory value = $61 * 10 = $610
• The First purchase 25 units at $63
• The First purchase Inventory value = $63 * 25 = $1575
• The Second purchase 30 units at $64
• The Second purchase Inventory value = $64 * 30 = $1920
• The Third purchase 15 units at $73
• The Third purchase Inventory value = $73 * 15 = $1095
• The total Inventory value = $610 + $1575 + $1920 + $1095
• The total Inventory value = $5200
• The total number of units = 10 + 25 + 30 + 15
• The total number of units = 80

Average cost per unit = Total Inventory value / Total number of units

• Average cost per unit = $5200 / 80
• Average cost per unit = $65

Units of the commodity on hand at the end of the year = 20

• Amount of the inventory at the end of the year = $65 * 20
• Amount of the inventory at the end of the year = $1300