Question

The following information is available for Massey Company:                              
Beginning inventory       600 units at $5                      
First purchase 900 units at $6                      
Second purchase       500 units at $7                      
                              
Assume that Massey uses a periodic inventory system and that there are 800 units left at the end of the month.                              
                              
Instructions                              
Show your work and Compute each of the following under the average-cost method:                              
(a)   Cost of ending inventory.                          
(b)   Cost of goods sold.                          

Answer 1

Ans.	*Calculations for Average cost per unit:
	Available for sale
	Transaction	Units	Rate	Total
	Beginning inventory	600	$5.00	$3,000
	First purchase	900	$6.00	$5,400
	Second purchase	500	$7.00	$3,500
	Cost of goods available for sale	2000		$11,900
	Average cost per unit =   Total cost of goods available for sale / Total units available
	$11,900 / 2,000
	$5.95	per unit
Ans. A	Cost of Ending inventory =   Average cost per unit * Ending inventory units
	$5.95 * 800
	$4,760
Ans. B	Cost of goods sold = Total cost of goods available for sale - Ending inventory
	$11,900 - $4,760
	$7,140