Problem-19: Inventories

Instructions

1. Compute the cost of ending inventory and the cost of goods sold using average-cost method.
2. Will the results in (a) be higher or lower than the results under (1) FIFO and (2) LIFO.
3. Why the average unit cost not $6?

Solution

Cost of ending inventory is lower than FIFO ($700>$500) but higher than LIFO. On the other hands cost of goods sold is lower than LIFO ($5,000>$4,800) but higher than FIFO

The Weighted average cost method uses the weighted average cost, not a sample average unit of cost. The sample average cost ($5+$6+$7)=$6 which is not used here