Using the same data (opening 100 units at £5, purchases of 200 at £6 and 150 at £7, with 320 units sold), what is closing inventory at the weighted average cost method calculated once for the whole period?
Answer and explanation
Correct answer: D. £794
- Step 1: Total cost of goods available = 100×£5 + 200×£6 + 150×£7 = £2,750.
- Step 2: Average cost per unit = £2,750 ÷ 450 units = £6.11 (to the nearest penny).
- Step 3: Closing inventory = 130 units × £6.1111 = £794 (to the nearest pound).
Answer
£794.
Why not the others: £910: This is the FIFO value, which uses the latest purchase price for all remaining units. £680: This values the remaining units at the oldest prices, which is the LIFO assumption. £780: This uses £6, a simple average of the three prices, but the correct average must weight each price by its quantity.
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