Inventory Cost Determination - Weighted Average

Question 1

Average

Answer 1

• Assumes that it is not practical to measure specific physical flow of inventory
• Therefore better to use an average price for the goods available for sale
• Uses a weighted average unit cost

Question 2

Applied when goods are sold

Answer 2

• to units sold to determine cost of goods sold
• to units on hand to determine ending inventory

Question 3

Perpetual System - Average vs. Periodic System - Average

Answer 3

• Perpetual records COGS at the time of sale
• Periodic only updates the COGS at the end of the fiscal period

Question 4

when is a new weighted average calculated?

Answer 4

after each purchase under a perpetual inventory system

Question 5

This average is then applied to:

Answer 5

• Units sold, to determine cost of goods sold
• Remaining units on hand, to determine ending inventory

Question 6

weighted average unit cost

Answer 6

cost of goods available for sale/total units available for sale = weighted average unit cost