Question

Required information (The following information applies to the questions displayed below.) Ferris Company began January with 8,000 units of its principal product. The cost of each unit is $6. Merchandise transactions for the month of January are as follows: Purchases Unit Cost* $ 7 Date of Purchase Jan. 10 Jan. 18 Totals Units 6,000 8,000 14,000 Total Cost $ 42,000 64,000 106,000 * Includes purchase price and cost of freight. Sales Date of Sale Jan. 5 Jan. 12 Jan. 20 Total Units 4,000 2,000 4,000 10,000 12,000 units were on hand at the end of the month. 4. Calculate January's ending inventory and cost of goods sold for the month using Average cost, periodic system.

Answer 1

Answer)

Weighted Average Cost Method: Using weighted average cost methods under period inventory value of inventory and cost of goods sold is calculated at the end of the specified period by calculating weighted average cost per unit. The weighted average cost is calculated by dividing the aggregate cost of beginning inventory and units purchased during the period by the total number of units in beginning inventory and units bought during the period.

The weighted average rate so calculated is multiplied with the units sold during the period and balance units in inventory at the end of specified period to arrive at the cost of ending inventory and cost of units sold respectively.

Calculation of value of ending inventory and cost of goods sold using average cost – Period System

Date	Particulars	Inventory
		Units	Cost per Unit	Total Cost
Jan'1	Beginning Inventory	8,000	$ 6.00	$ 48,000
Jan'10	Purchases	6,000	$7.00	$ 42,000
Jan'18	Purchases	8,000	$ 8.00	$ 64,000
Total		22,000		$ 154,000

Weighted average cost per unit

   = (Total cost of beginning inventory and inventory purchased during the month/ Total units in beginning inventory and inventory purchased during the month)

           = $ 154,000/ 22,000 units

          = $ 7.00 per unit

Value of Ending Inventory:

Value of ending inventory = Number of units in ending inventory X Weighted average cost per unit

                                               = 12,000 units X $ 7.00 per unit

                                              = $ 84,000    

Therefore the value of 12,000 units of ending inventory is $ 84,000.

Cost of Goods sold:

Cost of Goods sold = Number of units sold during the month X Weighted average cost per unit

                                               = 10,000 units X $ 7.00 per unit

                                              = $ 70,000    

Therefore the Cost of 10,000 units sold is $ 70,000.