Question

On January 1, 2008, Company X had beginning inventory consisting of 500 units with a unit cost of $7. During January, the company purchased inventory as follows: 200 units at $7 300 units at $8 The company sold 500 units during the month for $18 per unit. Company X uses the average cost method. 1. What is the average cost per unit for January? 2. What is the value of Company X's inventory on January 31, 2008? 3. What is Company X's gross profit for the month of January?

Answer 1

1. Beginning inventory = 500 units at $7 each

Purchase during January = 200 units at $7 each and 300 units at $8

Average cost per unit = Total cost of inventory/Number of units

= (500 x 7 + 200 x 7 + 300 x 8)/(500+200+300)

= (3,500+1,400+2,400)/1,000

= 7,300/1,000

= $7.3

2. Ending inventory = Beginning inventory + Inventory purchases - Inventory sold

= 500+500-500

= 500 units

Cost of ending inventory = Ending inventory x Average cost per unit

= 500 x 7.3

= $3,650

3. Cost of goods sold = Number of units sold x Average cost per unit

= 500 x 7.3

= $3,650

Sale = Number of units sold x Selling price per unit

= 500 x 18

= $9,000

Gross profit = Sales - Cost of goods sold

= 9,000-3,650

= $5,350

Kindly comment if you need further assistance.

Thanks‼!