Cambrige AS and A Level Accounting Notes (9706)/ ZIMSEC  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
DateReceiptsSalesBalance
UnitsUnit Cost ($)Total Cost($)UnitsUnit Cost($)Total Cost($)UnitsUnit Cost ($)Total Cost($)
Op/Bal5030.001 500
Jan 83030.009002030.00600
Jan 1010030.003 00012030.003 600
Jan 128030.002 4004030.001 200
Jan 2112030.503 66016030.3754 860
Jan 289030.3752 733.757030.3752 126.25
Feb 15030.3751 518.752030.725607.50
Feb 1415031.004 65017030.9265 257.50
Feb 2310030.9263 092.607030.9262 164.90
Mar 13030.926927.784030.9261 237.12
Mar 412031.503 78016031.3575 017.12
Mar 1912031.3573 762.844031.3571 254.28
Mar 2310032.003 20014031.8164 454.28
Mar 2712031.8163 817.922031.816636.36
  • According to the continuous method the closing inventory is:  $636.36
  • If we use the period end method instead all calculations are made at the end of the period:
DatePurchases in UnitsUnit Cost in $Purchases in $
Opening Balance5030.00 1 500.00
Jan 1010030.003 000.00
Jan 2112030.503 660.00
Feb 1415031.004 650.00
March 412031.503 780.00
March 2310032.003 200.00
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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