Question

The following lots of a particular commodity were available for sale during the year: Beginning inventory 10 units at $55 First purchase 25 units at $65 Second purchase 30 units at $68 Third purchase 15 units at $70 The firm uses the periodic system and there are 25 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 using the average cost method? $1,645 $1,525 $1,730 $3,620

Answer 1

Answer:

inventory at the end of the year  =1645

so correct option is $1,645

Explanation:

given data

Beginning inventory  = 10 units at $55

First purchase = 25 units at $65

Second purchase = 30 units at $68

Third purchase = 15 units at $70  

commodity on hand = 25 units

to find out

amount of the inventory at the end of the year using the average cost method

solution

we know that average costing is here  = Cost of goods available for sale ÷ Total units from beginning inventory and purchases    .......................1

now we first find average cost per unit as per given below

                                       units     price per unit                cost  

opening inventory              10            $55                                 $550

first purchase                      25           $65                                 $1625

second purchase                30           $68                                 $2040

third purchase                     15            $70                                 $1050

total                                   80          $65.81                          $5265

so here average price per unit is $\frac{5265}{80}$   = 65.81

and

number of units for sold will be = 80 - 25

number of units for sold = 55

and inventory at the end of the year will be

inventory at the end of the year = 25 × 65.81

inventory at the end of the year  =1645

so correct option is $1,645

Answer 2

The amount of inventory at the end of the year is $1,645. The value of inventory was calculated using average cost method.

What is average cost method?

Average cost method of inventory valuation is used to value inventories on the basis of their average cost. The average cost is calculated as follows:

$\rm Average \:cost =\dfrac{Total\:cost}{Number\:of\:units}$

Given:

Beginning inventory  is 10 units at $55

First purchase is 25 units at $65

Second purchase is 30 units at $68

Third purchase is 15 units at $70  

Commodity on hand is 25 units

Total cost and number of inventory are calculated in the attachment.

The average cost will be calculated as follows:

$\rm Average \:cost =\dfrac{\ 5,265}{80}\\\\\rm Average \:cost =\ 65.8125$

Therefore the value of closing inventory will be:

$\rm Closing \:inventory = 25 \times \ 65.8125\\\\\rm Closing \:inventory = \ 1,645.31$

Hence the correct option is a.

Learn more about average cost method here:

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