USA Weighted average cost method


Joined
Feb 29, 2020
Messages
6
Reaction score
0
Country
United States
Wanda owns a book store and needed to compute her inventory. She had 600 books on the floor and another 300 in the storeroom. She also had 45 electronic readers on the floor and 25 in the storeroom. Each book costs $15 and each electronic reader costs $250.

Using the weighted average cost method, the cost of each item being sold is __________.

31.96 should be the answer. I need some short explanation. Thanks!
 
Ad

Advertisements

Joined
Apr 10, 2020
Messages
1
Reaction score
1
Country
United Kingdom
What do you think might be the difference between the average cost of the items (15 + 250) / 2 and the weighted average cost of the items (15 * 900 + 250 * 70) / (900 + 70)?
 

Werner Reisacher

VIP Member
Joined
Jun 30, 2017
Messages
210
Reaction score
23
Country
Switzerland
Disregarding all accounting rules regarding inventory valuation, the following excel formula will solve the arithmetical part of the calculation:
=+((900*15)+(45*250))/945 ($26.19)
There are three common accounting methods that are used to calculate the unit cost of items we are keeping in the inventory. The weighted-average method is one of them. LIFO and FIFO are the two others.
Calculating the average-weighted cost of an item is arithmetically simple as shown above. But when it comes to accounting, the data we are using must provide us with transparency and allow us to identify reasons that caused deviations from prior years or expected budgeted results. Therefore, the weighted-average cost method can only be used if we calculate the cost basis for products that are identical to each other. (same price range/same product category)
Mixing books ($15) with electronics ($ 250) would totally defeat that purpose.
Below is a URL that might be helpful:

 
Ad

Advertisements

Joined
Feb 29, 2020
Messages
6
Reaction score
0
Country
United States
Disregarding all accounting rules regarding inventory valuation, the following excel formula will solve the arithmetical part of the calculation:
=+((900*15)+(45*250))/945 ($26.19)
There are three common accounting methods that are used to calculate the unit cost of items we are keeping in the inventory. The weighted-average method is one of them. LIFO and FIFO are the two others.
Calculating the average-weighted cost of an item is arithmetically simple as shown above. But when it comes to accounting, the data we are using must provide us with transparency and allow us to identify reasons that caused deviations from prior years or expected budgeted results. Therefore, the weighted-average cost method can only be used if we calculate the cost basis for products that are identical to each other. (same price range/same product category)
Mixing books ($15) with electronics ($ 250) would totally defeat that purpose.
Below is a URL that might be helpful:

Thanks
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top