Accounting!!

Applying Average Cost

Click hereto review an illustrated example of the average cost calculation. The key is to compute a new average cost after each purchase.

You will now put the average cost method into practice. Millwall Co. would like to explore what is meant by the weighted average cost per unit, a concept that is central to this method of inventory valuation. Remember, the weighted average must be adjusted with each purchase. Also, as sales occur, previous inventory values must be bundled to keep track of inventory on hand and to accurately track subsequent additions to inventory.

The data for Millwall Co. is below for the month of November.

Millwall Co.'s inventory data for November
Date	Description	Units Purchased at Cost	Units Sold at Retail
Nov. 1	Beg. Inv.	700 units @ $11 = $7,700
4	Purchase 1	100 units @ $13 = $1,300
7	Sale 1		480 @ $30
12	Purchase 2	500 units @ $9 = $4,500
15	Purchase 3	600 units @ $5 = $3,000
23	Sale 2		300 @ $30

Complete the schedule below. Remember, the weighted average must be adjusted with each purchase. Also, as sales occur, previous inventory values must be bundled to keep track of inventory on hand and to accurately track subsequent additions to inventory. Round the average cost per unit to four decimal places and total costs to the nearest dollar.

Date	Description		Inventory Balance	Inventory Total	Weighted Average Cost Per Unit	Cost of Goods Sold
Nov. 1	Beginning Inventory		700 x $11	= $7,700	= $11.00/unit
4	Balance forward Purchase 1 (100 @ $13		700 x $11 100 x $13	= $7,700 = $1,300	= $[removed]/ unit
7	Sale 1 (480 @ $30)		480 x $[removed]	=		= $[removed]
12	Balance forward Purchase 2 (500 @ $9		[removed] x $[removed] 500 x $9	= $[removed] = $4,500	= $[removed] /unit
15	Balance forward Purchase 3 (600 @ $5)		[removed] x $[removed] 600 x $5	= $[removed] = $3,000	= $[removed] /unit
23	Sale 2 (300 @ $30)		300 x $[removed]			= $[removed]
	End of month balance		[removed] x $[removed]	$[removed]