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Freehan Company’s accounting records has the following information about its inventory:

Units Unit Cost Inventory
8,000 $8 Jan. 1
17,000 $10 Apr. 2
15,000 $12 Aug. 28

If the company has 9,000 units on hand at December 31, how much is the cost of ending inventory under the average-cost method in a periodic inventory system?

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jepessoa

Answer:

The answer is: $93,150

Explanation:

We can use the following formula to calculate the ending inventory under the average cost method:

  • ending inventory = average cost per unit x number of units in inventory

First we must determine the average cost per unit:

= [(8,000 x $8) + (17,000 x $10) + (15,000 x $12)] / (8,000 + 17,000 + 15,000)

= ($64,000 + $170,000 + $180,000) / 40,000 units = $414,000 / 40,000

= $10.35 per unit

Then we calculate the value of the ending inventory:

ending inventory = $10.35 per unit x 9,000 units = $93,150

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