When average costing method is used in a periodic inventory system, the cost of goods sold and the cost of ending inventory is computed using weighted average unit cost. $45,112 (175 units × $257.78 weighted average cost)
To calculate using the weighted average method, divide the total cost of items in inventory available for sale by the total number of units available for sale. Let's look at our example. Again, Mega Irrigation had purchased 10 sprinklers for $10.00 and then 20 sprinklers for $20.00. The total number of sprinklers is 30 for a cost of $500. To calculate the ending inventory balance using weighted average, start by dividing the total cost by total number of sprinklers. In this case, it is $500 divided by 30 sprinklers, equaling $16.67 per sprinkler. If the company uses weighted average method for inventory valuation, the value of inventory as on March 31, 2005 is: a. $11967 b. $12000 c. $12500 …. Inventory Ledger Account Exercise. Below is the records of receipts and issues of a certain material in a factory for the month ending 30th September, 2008. The value of our closing inventories in this example would be calculated as follows: Using the First-In-First-Out method, our closing inventory comes to $1,100. This equates to a cost of $1.10 per lollypop ($1,100/1,000 lollypops). Using the weighted average cost method, our closing inventory amounts to $1,059. This equates to a cost of $1.06 per lollypop ($1,059/1,000 lollypops). Oddly enough, the LIFO method is the preferred inventory valuation method in the United States but is disallowed in non-US countries. The value of our closing inventories in this example would be calculated as follows: Using the First-In-First-Out method, our closing inventory comes to $1,100. This equates to a cost of $1.10 per lollypop ($1,100/1,000 lollypops). When using the weighted average method, divide the cost of goods available for sale by the number of units available for sale, which yields the weighted-average cost per unit. In this calculation, the cost of goods available for sale is the sum of beginning inventory and net purchases. The total of all purchased or beginning inventory units is 450 (150 beginning inventory + 300 purchased). The weighted average cost per unit is therefore $257.78 ($116,000 ÷ 450 units.). Average costing method in periodic inventory system: When average costing method is used in a periodic inventory system, the cost of goods sold and the cost of ending inventory is computed using weighted average unit cost. Weighted average unit cost is computed using the following formula : Cost of goods sold: 2,500 units × $10.5118 = $26,280 Cost of ending inventory: 900 units × $10.5118 = $9,460. When average costing method is used in a perpetual inventory system, an average unit cost figure is computed each time a purchase is made. The ending inventory valuation is $45,112 (175 units × $257.78 weighted average cost), while the cost of goods sold valuation is $70,890 (275 units × $257.78 weighted average cost). The sum of these two amounts (less a rounding error) equals the $116,000 total actual cost of all purchases and beginning inventory. The total of all purchased or beginning inventory units is 450 (150 beginning inventory + 300 purchased). The weighted average cost per unit is therefore $257.78 ($116,000 ÷ 450 units.). Weighted Average Method Overview. The weighted average method is used to assign the average cost of production to a product. Weighted average costing is commonly used in situations where: 1  Inventory items are so intermingled that it is impossible to assign a specific cost to an individual unit. The total of all purchased or beginning inventory units is 450 (150 beginning inventory + 300 purchased). The weighted average cost per unit is therefore $257.78 ($116,000 ÷ 450 units.).
http://study.com/academy/lesson/inventory-valuation-methods-specific-identification-fifo-lifo-weighted-average.html http://www.accounting-basics-for-students.com/fifo-method.html http://www.accounting-basics-for-students.com/fifo-method.html http://www.accountingtools.com/weighted-average-method http://www.accountingformanagement.org/weighted-average-costing-method-of-inventory-valuation/ http://www.accountingtools.com/weighted-average-method http://www.accountingtools.com/weighted-average-method
weighted average method of inventory valuation