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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- This is a solution to the question found here
- To learn more about the AVCO inventory valuation method click here
- You can learn more about inventory valuation methods here
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: $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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