Question

A company values its inventory using the AVCO method. On 1 January 20X7 it had opening inventory of 200 items valued at a total of £40,000. The following transactions have taken place.
February Bought 500 items @ $210 each
March Sold 300 items @ $90,000
August Bought 300 items @ $215 each
September Sold 200 items @ $60,000

What is the value of the closing inventory at 31 December 20X7, based on period end inventory records?

Answer 1

In AVCO In periodic inventory system, weighted average cost per unit is calculated for the entire class of inventory. It is then multiplied with number of units sold and number of units in ending inventory to arrive at cost of goods sold and value of ending inventory respectively

Value of Inventory Sold in March will be 300* 207.13 i.3 62143

Value of Remainiing inventory will be 82857 i.e 145000-62143

In august 300 more products were bought bringing the total inventory value to 147, 537 ( 145000-62143+64500) and average cost 210.51

In September Value of Inventory sold will be 200*210.51 = 42102

So the value of remaining inventory will 105,255 i.e 500 units * 210.51