### Cambrige AS and A Level Accounting Notes (9706)/ ZIMSECĀ  Advanced Accounting Level Notes: Inventory valuation: Inventory valuation methods: Weighted Average Cost(AVCO): Example Question

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#### The Solution

• Under AVCO it is assumed that items are being sold/issued in a random order
 Date Receipts Sales Balance Units Unit Cost (\$) Total Cost(\$) Units Unit Cost(\$) Total Cost(\$) Units Unit Cost (\$) Total Cost(\$) Op/Bal 50 30.00 1 500 Jan 8 30 30.00 900 20 30.00 600 Jan 10 100 30.00 3 000 120 30.00 3 600 Jan 12 80 30.00 2 400 40 30.00 1 200 Jan 21 120 30.50 3 660 160 30.375 4 860 Jan 28 90 30.375 2 733.75 70 30.375 2 126.25 Feb 1 50 30.375 1 518.75 20 30.725 607.50 Feb 14 150 31.00 4 650 170 30.926 5 257.50 Feb 23 100 30.926 3 092.60 70 30.926 2 164.90 Mar 1 30 30.926 927.78 40 30.926 1 237.12 Mar 4 120 31.50 3 780 160 31.357 5 017.12 Mar 19 120 31.357 3 762.84 40 31.357 1 254.28 Mar 23 100 32.00 3 200 140 31.816 4 454.28 Mar 27 120 31.816 3 817.92 20 31.816 636.36
• According to the continuous method the closing inventory is:Ā Ā \$636.36
• If we use the period end method instead all calculations are made at the end of the period:
 Date Purchases in Units Unit Cost in \$ Purchases in \$ Opening Balance 50 30.00 1 500.00 Jan 10 100 30.00 3 000.00 Jan 21 120 30.50 3 660.00 Feb 14 150 31.00 4 650.00 March 4 120 31.50 3 780.00 March 23 100 32.00 3 200.00 Totals for the quarter 640 30.922 19 790.00
• The cost per unit would be \$30.922 for the entire period hence with closing inventory of 20 units
• Closing inventory would be:
• \$618.44

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