Altira Corporation provides the following information related to its merchandise inventory during the month of August 2021: Inventory on units; cost $5.70 each.
Purchased 12,000 units for $5.90 each.
Sold 9,600 units for $12 each.
Purchased 7,200 units for $6.00 each.
Sold units for $11.40 each.
Purchased 4,400 units for $5. 80 each.
Inventory on units.

Required:
Using calculations based on a perpetual inventory system, determine the inventory balance Altira would report in its August 31, 2021, balance sheet and the cost of goods sold it would report in its August 2021 income statement using the Average cost method.

Aug. 1 Inventory On Hand—2,000 Units; Cost $5.70 Each.

Second sales assumed to be 7,000 units at a price of $11.40 each.

Altira Corporation

August 2021 Ending Inventory & Cost of Goods Sold:

1. Ending Inventory = 9,000 units at $5.88 per unit = $52,920

2. Cost of goods sold =

9,600 x $5.87 = $56,352

7,000 x $5.95 =  $41,650

16,600 units   =  $98,002

Explanation:

a) Calculations:

                                         Units           Unit Cost       Total Cost

Beginning Inventory      2,000            $5.70              $11,400

Purchases                     12,000            $5.90            $70,800

Weighted average cost = ($11,400 + $70,800) / 14,000 = $5.87

Sales                             (9,600)          $12.00                               $115,200

Units remaining             4,400            $5.87             $25,828

Purchases                      7,200             $6.00            $43,200

Weighted average cost = ($25,828 + $43,200) / 11,600 = $5.95

Sales                             (7,000)            $11.40                              $79,800

Units remaining            4,600             $5.95             $27,370

Purchases                     4,400             $5.80             $25,520

Weighted average cost = ($27,370 + $25,520) / 9,000 = $5.88

Ending Inventory        9,000               $5.88             $52,920

b) The 'Average Cost Method' or the Weighted Average Cost Method assumes that the cost of inventory is based on the average cost of the goods available for sale during the period. To compute the average cost, divide the total cost of goods available for sale by the total units available for sale.

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