Chapter 8
Inventory Valuation
229
Date
Purchases
Sales
Balance
Quantity Unit Cost Value Quantity Unit Cost Value Quantity Unit Cost Value
March 1
10
$10
$100
March 5
50
$12
$600
10
$10
$100
50
$12
$600
March 7
10
$10
$100
5
$12
$60
45
$12
$540
March 15
40
$14
$560
45
$12
$540
40
$14
$560
March 19
20
$16
$320
45
$12
$540
40
$14
$560
20
$16
$320
March 27
45
$12
$540
5
$14
$70
35
$14
$490
20
$16
$320
Ending Inventory
$810
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FIGURE 8.3
1
Record the opening balance of inventory of 10 pens at $10 each.
2
The purchase of 50 pens on March 5 is added to the value of inventory. These are listed on a
separate line from the 10 opening units because they were purchased on a different date.
3
The sale of 15 pens on March 7 must first use the costs from the opening balance. Since there
were only 10 pens in the opening balance, another five are taken from the purchase on March
5.This means that the entire opening balance inventory has been sold and only 45 units remain
from the purchase on March 5.The value of cost of goods sold for this sale is $160 ($100 + $60).
4
The purchase of 40 pens on March 15 is added to the value of inventory. Again, a new row is
used because they were purchased on a different date.
5
The purchase of 20 pens on March 19 is added to the value of inventory. Again, a new row is
used because they were purchased on a different date.
6
The sale of the 50 pens on March 27 must first use the costs from the purchase on March 5.
Since there are only 45 pens left from that purchase, another five are taken from the purchase
on March 15.The value of cost of goods sold for this sale is $610 ($540 + $70).
7
The value of ending inventory is made up of 35 pens remaining from the March 15 purchase
and 20 pens from the March 19 purchase. Total value of inventory is $810 ($490 + $320).
Weighted-Average Cost Method
The weighted-average cost method is used when inventory items are identical and the order they
are sold in is irrelevant. For example, a gas station has its gasoline tank filled, and the new product
is mixed with the old product.
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