Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition): 41 units at $103 per unit 72 units at $86 per unit 171 units at $62 per unit Sales for the year totaled 265 units, leaving 19 units on hand at the end of the year. Ending inventory using the average cost method is:

The cost of ending inventory is $1406

Explanation:

The average cost method assigns the cost to inventory based on the average cost of the goods available for sale. the average cost per unit is calculated as,

Average cost per unit = Cost of Goods available for sale / Total Number of units

Where, cost of goods available for sale = Opening Inventory + Purchases for the period

Cost of goods available for sale = 41 * 103 + 72 * 86 + 171 * 62 = $21017

Total number of units = 41 + 72 + 171 = 284 units

Average cost per unit = 21017 / 284     = $74.0035 rounded off to $74

The cost of ending inventory = 19 *  74 = $1406

Ending inventory using the average cost method is: $ 1,406

Explanation:

With Weighted Average Cost Method, a New Cost of Inventory is Calculated with each Purchase.

Calculation of Cost of Inventory is as follows :

Cost per Unit = Total Cost / Total Units

41 units at $103 per unit

Cost per Unit = ($103×41 units) / 41 units

                      = $ 103

72 units at $86 per unit

Cost per Unit = ($103×41 units)+ ($86×72 units) / (72+41) units

                      = $ 92.17

171 units at $62 per unit

Cost per Unit = ($92.17×113 units)+ ($62×171 units) / (113+171) units

                      = $ 74.00

Calculation of Ending Inventory

Ending inventory = Number of Units × Cost per Unit

                            =  19 units × $ 74.00

                            =  $ 1,406

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