Question

The following units of an inventory item were available for sale during the year:
Beginning inventory 11 units at $52
First purchase 19 units at $54
Second purchase 21 units at $55
Third purchase 18 units at $57
The firm uses the periodic inventory system. During the year, 27 units of the item were sold.
The value of ending inventory rounded to the nearest dollar using average cost is (Round average cost per unit to three decimal places.)
a.$1,404
b.$1,521
c.$2,300
d.$1,436

Answer 1

Answer:

  c. $2300

Step-by-step explanation:

You want the dollar value of the remaining inventory after 27 units were sold, using their average cost.

Inventory

The purchases to inventory over the year totaled ...

  11 +19 +21 +18 = 69 . . . units

The cost of those purchases was ...

  11·$52 +19·54 +21·55 +18·57 = $3779

Average cost

The average cost of the units purchased was ...

  $3779/69 ≈ $54.768 . . . per unit

Ending inventory

The inventory at the end of the year is then ...

  69 -27 = 42 units

and its value is ...

  42·$54.768 ≈ $2300

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Additional comment

As demonstrated in the attached calculation, we can get the same result by subtracting the value of goods sold from the value of the inventory. There will be a fraction of a cent difference due to rounding average cost to 3 dp.

Here, we have treated the beginning inventory as a purchase. For these calculation purposes, it is not different from a purchase.

Next year, the beginning inventory will be 42 units at $54.762. The difference in the last decimal place (from $54.768 per unit) comes from the rounding of inventory value down to the nearest dollar.

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