Company Y Has The Following Inventory Data | Calculation Of Ending Inventory Using Weighted Average Cost Method

The correct option of this multiple choice question (mcq) is (a), as proved below:

Here, we need to calculate the ending inventory by using average cost method in which we add the cost of all unsold units (units on hand) and then divide it by sum of unsold units to calculate per unit cost, which is multiplied by number of remaining unsold units. Mathematically, we use the following weighted average cost method as shown below:

Weighted Average Cost = Total Cost of All Unsold Units / Total Unsold Units

On 1^st August, beginning inventory is 20 units X $10 = $200

On 8^th August, Purchases is 130 units X $15 = $1,950

On 17^th August, sale of 80 units was made, so unsold units remained 70, so ending inventory under perpetual inventory system is calculated as shown below:

Weighted Average Cost = $200 + $1,950 / 20 + 130 units = $2,150 / 150 units = $14.33333 per unit cost

Ending Inventory = 70 units X $14.33333 = $1,003.3331

On 25^th August, purchased inventory is 30 units X $20 = $600

On 30^th August, sale of 60 units was made, so units on hand is 40 units and ending inventory can be calculated as follows:

Weighted Average Cost = $1,003.3331 + $600 / 70 + 30 units = $1,603.3331 / 100 units = $16.03333 per unit cost

Ending Inventory = 40 units X $16.03333 = $641.33

If we calculate cost of sales, which is not asked in the mcq question, then it can be calculated as shown below:

On 17^th August, Cost of Sales = 80 units X $14.33333 = $1,146.6664

Cost of Sales On 30^th August, 60 units X $16.03333 = $961.9998

Total Cost of Sales = $1,146.6664 + $961.9998 = $2,108.67

So, we can say that under perpetual inventory system, the ending inventory is $641.33 by applying weighted average cost method.