Blossom Company uses a periodic inventory system and reports the following for the month of June.
Calculate weighted-average unit cost.
Weighted-average unit cost
The Correct Answer and Explanation is :
The weighted-average unit cost is $6.10.
Explanation:
Blossom Company uses a periodic inventory system, which means that inventory is updated at the end of the accounting period rather than after each transaction. The weighted-average method calculates an average cost per unit by dividing the total cost of goods available for sale by the total number of units.
Step 1: Compute Total Cost
Given the data:
- June 1 Inventory: 120 units × $5 = $600
- June 12 Purchase: 390 units × $6 = $2,340
- June 23 Purchase: 190 units × $7 = $1,330
Total inventory cost = $600 + $2,340 + $1,330 = $4,270
Step 2: Compute Total Units
Total units available for sale:
- 120 + 390 + 190 = 700 units
Step 3: Calculate Weighted-Average Unit Cost
[
\text{Weighted-Average Unit Cost} = \frac{\text{Total Inventory Cost}}{\text{Total Units Available}}
]
[
= \frac{4,270}{700} = 6.10
]
Thus, the weighted-average unit cost is $6.10 per unit.
This method smooths out price fluctuations and simplifies inventory valuation. It is particularly useful when inventory turnover is high, and it avoids the complexity of tracking specific unit costs.