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Answers to questions

Example 2: Solution (cont.)

3 Continuous AVCO basis

With this inventory valuation method we work out an updated
average cost per unit each time a purchase of inventory is made.
Any subsequent sales are accounted for at that average cost per
unit until the next purchase is made and a new average cost per
unit is calculated.

The best way to deal with this is to prepare a schedule dealing with
transactions in date order as follows:

Date Transaction Units Cost Total cost
$ $
1 Jan X6 Op inventory 5 3.50 17.50
2 Jan X6 Purchase 5 4.00 20.00
–– –––––
10 (37.50/10) = 3.75 37.50
4 Jan X6 Purchase 5 5.00 25.00
–– –––––
15 (62.50/15) = 4.17 62.50
5 Jan X6 Sale at cost (7) 4.17 (29.19)
–– –––––
8 33.31
6 Jan X6 Purchase 5 5.50 27.50
–– –––– –––––
7 Jan X6 Cl inventory 13 (60.81/13) = 4.68 60.81
–– –––– –––––

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