Question

How does the weighted-average cost method differ from the average cost method?

	A.	Each inventory price is weighted by the quantity of units purchased at a given price with the weighted-average cost method.
	B.	An average of the inventory purchase prices is computed without regard to the quantities purchased with the weighted-average cost method.
	C.	The average cost method assumes all inventory items have the same cost, whereas the weighted-average cost method assumes costs differ.
	D.	The average cost method is used with periodic inventory systems and the weighted-average cost method is used with perpetual inventory systems.

Answer 1

The major difference between weighted-average cost method and average cost method is that weighted-average cost method is used with perpetual inventory systems and average-cost method is used with periodic inventory systems.

Under weighted-average cost method, costs of inventory changes with every purchase or sales perpetually over a period of time and a weight is provided to each unit cost by dividing the cost of goods available for sale by number of units available for sale.

However, under average-cost method the cost is assigned based on the total cost of goods purchased in a period divided by number of units purchased during that period.

So, the correct option will be D.