Perpetual Average Cost

jaefer · #1 Nov 2, 2009, 09:10 PM

Hi I was wondering if anyone could help me on my acct hw. I have to figure out the average cost using the perpetual inventory system. this is the info given to me:

These following transactions are all purchases:

5/1: Units Purchased:7; Unit Cost: $151
5/4: Sales Unit: 4
5/8: Units Purchased:8; Unit Cost: $166
5/12: Sales Unit: 5
5/15: Units Purchased:6; Unit Cost: $184
5/20: Sales Unit: 3
5/25: Sales Unit: 4

I calculated LIFO=2,704 and FIFO=2,569 and Total Cost=3,489

can someone show me the steps to solving the average cost? I tried following examples but I always get lost.

thank you to anyone who can help me!

rehmanvohra · Nov 3, 2009, 09:33 AM

We can not solve the problem for you, but here is a guidance.

You calculate average cost at the time of every new purchase by adding together the cost of inventory in hand with the cost of new purchases, whih is then divided by the total inventory units available.

jaefer · Nov 3, 2009, 10:18 PM

After looking at some examples, this is what I came up with, can you tell me if I did it correctly?

5/4 [4 x 151] = 604
5/2 [3 x 151] + [8 x 166] = 1781;
1781/11=161.91; 161.91 x 5 = 809.55
5/20 [6 x 166] + [6 x 184] =2100;
2100/12 = 175; 175 x 3 = 525
5/25 [2 x 166] + [6 x 184] = 1436;
1436/8 = 179.5; 179.5 x 8 = 1436

Total: [604+809.55+525+1436] = 3374.55

Total Cost = 3489

Ending Inventory [Average Cost] = 3489-3374.55 = 114.45

Is this correct?

rehmanvohra · Nov 3, 2009, 10:47 PM

Quote:

Originally Posted by jaefer

After looking at some examples, this is what I came up with, can you tell me if I did it correctly?

5/4 [4 x 151] = 604
5/2 [3 x 151] + [8 x 166] = 1781;
1781/11=161.91; 161.91 x 5 = 809.55
5/20 [6 x 166] + [6 x 184] =2100;
2100/12 = 175; 175 x 3 = 525
5/25 [2 x 166] + [6 x 184] = 1436;
1436/8 = 179.5; 179.5 x 8 = 1436

Total: [604+809.55+525+1436] = 3374.55

Total Cost = 3489

Ending Inventory [Average Cost] = 3489-3374.55 = 114.45

Is this correct?

No the answer is not correct:
On 5/20 you had a balance of 6 units @ 161.91 and not @166. The average cost of 161.91 will remain till end since there are no purchases after that date. The ending inventory will be value @161.91

jaefer · Nov 4, 2009, 11:50 AM

wait, why do I have to continue using 161.91? is that part of using this method? How come I didn't reuse any average number? thank you for correcting too!

jaefer · Nov 4, 2009, 11:51 AM

I just tried inputting the answer and it said it was wrong?

jaefer · Nov 4, 2009, 12:16 PM

Sorry for all the replies, but is this correct for the entries of 5/20 and 5/25?

5/20 [6 x 161.91] + [6 x 184] = 2075.46
2075.46/172.96; 172.96 x 3 = 518.88

5/25 [2 x 161.91] + [6 x 184] = 1427.82
1427.82/8 = 178.48; 178.48 x 8 = 1427.82

Making the total = 3360.25
Ending inventory = 3489-3360.25 = 128.75

is that correct?