Question

A company just starting business made the following inventory transactions in August:

Purchase on August 1       300 units       $1,560
Sale on August 8       200 units       3,400
Purchase on August 12       400 units       1,340
Sale on August 24       350 units       5,950

Using the average cost perpetual inventory method, how much is the average cost of the units sold on August 24?

$4.28
$3.72
$9.80
$4.14

Answer 1

Average cost perpetual inventory method

Under the perpectual method, we calculate the average cost after each purchase.

Average cost = Total cost / Units

Average cost of the units sold on August 8 = Unit purchase on August 1

= ($1560 / 300 units)

= $5.20

Cost of Inventory balance on August 8 = (300 units - 200 units) * $5.20

= 100 units * $5.20

= $520

Average cost of the units sold on August 24 = ($520 + $1,340) / (100 units + 400 units)

= $1,860 / 500 units

= $3.72