Page 465 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Answers

(b) Average cost method
Total purchases = 200 + 100 + 150 = 450 units

Total cost of purchases =
200 × $15 = $3,000
100 × $18 = $1,800
150 × $20 = $3,000
––––––
$7,800
Weighted average cost = $7,800/450 units = $17.33 per unit
Total cost of closing inventory = 200 units × $17.33 = $3,467

Note: An alternative approach could be to calculate the average cost after
each transaction, i.e. after day 2 total purchases $4,800/total 300 units = cost
of $16. After the sale has taken place this would leave 50 units in inventory
valued at $16 per unit = $800. This would then be added to additional
purchases to calculate future average costs. Therefore, on day 4, purchases of
$3,000 would be added to $800 = $3,800/total units of 200 = cost of $19 per
unit. This would result in a higher closing inventory value of $3,800.

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