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Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124
Textbook Problem

The following units of a particular item were available for sale during the calendar year:

images

The firm uses the weighted average cost method with a perpetual inventory system. Determine the cost of merchandise sold for each sale and the inventory balance after each sale. Present the data in the form illustrated in Exhibit 5.

To determine

Determine the cost of merchandise sold for each sale after each sale as on December 31.

Explanation

Perpetual Inventory System: Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases, and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.

Weighted -average cost method:  Under weighted average cost method, the company calculates a new average cost after every purchase is made. It is determined by dividing the cost of goods available for sale by the units on hand.

Calculate the cost of merchandise sold and ending inventory. (Weighted average method)

Figure (1)

Working Note 1: Calculate the weighted average unit cost after June 30 purchases.

Weighted average method
QuantityUnit costTotal cost of inventory in hand
1,500 units$20 30,000
6,000 units$24 144,000
7,500 units $ 174,000

Weighted average unit cost = Total cost of inventory in handTot

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