Chapter 8
Inventory Valuation
230
When using the weighted-average cost method, the total inventory value is divided by the total
quantity on hand to arrive at an average cost for each unit.This is done by using a table as shown
in Figure 8.4.
Average Unit Cost = Total Value ÷ Total Quantity
The opening balance and the transactions from Figure 8.1 are listed in the table.The average unit
cost changes after every purchase, but not after a sale. At the bottom of the figure is the value of
ending inventory.
Date
Purchases
Sales
Balance
Quantity Unit Cost Value Quantity Unit Cost Value Quantity Unit Cost Value
March 1
10 $10.00 $100.00
March 5
50
$12
$600
60 $11.67 $700.00
March 7
15 $11.67 $175.05
45 $11.67 $524.95
March 15
40
$14
$560
85 $12.76 $1,084.95
March 19
20
$16
$320
105 $13.38 $1,404.95
March 27
50 $13.38 $669.00
55 $13.38 $735.95
Ending Inventory
$735.95
______________
FIGURE 8.4
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 quantity on hand. The value of the 50
pens is first added to the value of the opening inventory.The average unit cost is approximately
$11.67 ($700 ÷ 60 units).
3
The sale of 15 pens on March 7 is taken from inventory. The most recent unit cost of
approximately $11.67 per unit is used to calculate the cost of goods sold of $175.05 ($11.67 x
15). Both the quantity and value of inventory decrease, and the unit cost is still approximately
$11.67 ($524.95 ÷ 45 units).The unit cost of inventory will never change after a sale; it can only
change after a purchase.
4
The purchase of 40 pens on March 15 is added to the quantity on hand.The value of the 40 pens
is added to current value of inventory.The unit cost is now approximately $12.76 ($1,084.95 ÷
85 units).
5
The purchase of 20 pens on March 19 is added to the quantity on hand.The value of the 20 pens
is added to current value of inventory.The unit cost is now approximately $13.38 ($1,404.95 ÷
105 units).
6
The sale of the 50 pens on March 27 is taken from inventory. The most recent cost of
approximately $13.38 per unit is used to calculate the cost of goods sold of $669.00 ($13.38 ×
50).
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