Question

Average- As per this method inventory is valued by taking the average of the purchases and thereby calculating the Cost of goods sold as per the units sold.

Answer 1

Yes.

Under Average Method, Inventory is valued by taking average purchase price, and on the basis of that:

Cost of Goods is calculated, and
ending Inventory is calculated.

Lets use an example (periodic system)

	Units	Cost/unit	Amount
Beginning Inventory	9500	$8.2	$77900
Purchases:
08-Aug	28000	$7.3	$204400
18-Aug	15000	$6.8	$102000

Lets see the above figures of beginning inventory and Purchases made. Total Units (Beginning + Purchases) = 52,500 units
Total cost of those 52,500 units = 77900 + 204400 + 102000 = $ 384,300

Now, average cost per unit is calculated as $ 384300 / 52,500 units = $ 7.32 per unit.

Suppose out of those 52500 units, 39000 units were sold and 13500 is the ending inventory, then:

Cost of Goods Sold = 39,000 units x $7.32 = $ 285,480
Cost of Ending Inventory = 13,500 units x $ 7.32 = $ 98,820