basic instructions for weighted average inventory method
DESCRIPTION
Basic Instructions for Weighted Average Inventory method under the periodic system.TRANSCRIPT
Weighted Average Inventory Valuation Methods
MJC Revised 12/2010 Page 1
Chart 1
Inventory-listing chart in the order items were purchased during the year.
Purchase Dates Number of
units
Cost per
unit
Total
extended cost
Beginning inventory
(oldest material) 20 7 140
First purchase of the year 40 8 320
Second purchase 30 9 270
Third purchase 20 10 200
Fourth purchase
(Newest Material) 30 11 330
Units Available for sale and Goods Available for Sale
(Total of all purchases plus beginning inventory) 140 X $1,260
Less: Units Sold 80
Units in ending inventory 60
How to Create Chart 1- the Inventory-Listing Chart
1. Create the chart of items, which will display in order from oldest to newest the beginning
inventory and all of the items in inventory that were purchased during the year. Start with
the beginning inventory, which is any item(s) left in stock at the end of the prior year.
Then list in order of purchase date items of inventory purchased during the year. You will
start the chart with the four columns which will be labeled as follows:
(a)
Purchase Dates
(b)
Number
of units
(c)
Cost per
unit
(d)
Total
extended cost
(b) X (c) = (d)
2. Fill in the information of how many purchases, the number of units per purchase, the cost
per unit for each purchase. Multiply across the number of units times the cost per unit to
get the total extended cost.
3. Total down the columns for number of units and total extended cost. This will give you
total units and goods available for sale. There is no need to total column (c) Cost per unit
because it provides no useful information.
4. Subtract the total units sold for the total units available for sell in column (b) Number of
units to get the number of units in ending inventory.
Weighted Average Inventory Valuation Methods
MJC Revised 12/2010 Page 2
Weighted-average Inventory Method
The average cost per unit is equal to the goods available for sale divided by total units available
for sale.
Chart 1-Use chart 1 from page 1.
Chart 2 – the calculation for Average Cost per Unit chart:
Goods Available for Sale Total units available for Sale Average cost per unit
1,260 140 9
Chart 3 – the calculation for the value of ending inventory:
Ending units Average Cost per unit Total Cost
60 9 540
Chart 4 – the calculation for the value of Cost of goods sold:
Item Title Amount
Goods Available for Sale 1,260
Less: Cost of Ending Inventory 540
Equals: Cost of Goods Sold $720
Chart 5 – the calculation for the value of Cost of Goods Sold using the Check Method:
Ending Units Average Cost per unit Total Cost
80 9 720
Total ending cost 720
Weighted Average Inventory Valuation Methods
MJC Revised 12/2010 Page 3
Weighted Average Method
How to create chart 2 – Average cost per unit using the Weighted Average Method
1. For the Weighted Average Method the charts will be different from those of FIFO and
LIFO. The second chart for this method will calculate the average cost per unit for the
inventory.
(a)
Goods Available for Sale
(b)
Total units available for Sale
(c)
Average cost per unit
(a) / (b) = (c)
2. You will find the goods available for sale in dollars at the bottom of chart 1. Divided that
total dollar amount by the total units available for sale from chart 1 this will result in the
average cost per unit.
How to create chart 3 – ending inventory in dollars using the Weighted Average Method
1. Start with these headers:
(a)
Ending units
(b)
Average Cost per unit
(c)
Total Cost
(a) X (b) = (c)
2. For this chart, you will take the average cost per unit from chart 2 and multiply that dollar
amount by the total number of units in ending inventory to get the total cost of ending
inventory in dollars.
How to create chart 4 – cost of goods sold using the Weighted Average Method
1. Use this chart for calculating cost of goods sold:
Item Title Amount
Goods Available for Sale
Less: Cost of Ending Inventory
Equals: Cost of Goods Sold
2. Goods Available for Sale in dollar amounts comes from chart 1 – the Inventory-Listing
chart. You will find the information at the bottom of the chart on the right hand side of
your page.
3. Next, is “Less: Cost of Ending Inventory” which comes from chart 3 at the bottom of that
chart.
Weighted Average Inventory Valuation Methods
MJC Revised 12/2010 Page 4
4. Now subtract cost of ending inventory from goods available for sales to get the cost of
goods sold.
How to create chart 5 – Cost of Goods Sold using the Check Method
for Weighted Average Method
1. Using these chart headings:
(a)
Ending Units
(b)
Average Cost per unit
(c)
Total Cost
(a) X (b) = (c)
Total ending cost
2. You will get the total average cost per unit from chart 2 and then multiply that dollar
amount times the total number of units sold during the year, which comes from chart 1 to
get the cost of goods sold.
3. Now check your total for chart 5 against the total in chart 4 if the totals match then you
have a correct ending total for cost of goods sold.