Weighted Average Inventory Valuation Methods

Chart 1 Inventory-listing chart in the order items were purchased during the year. Purchase Dates Beginning inventory (oldest material) First purchase of the year Second purchase Third purchase Fourth purchase (Newest Material) Units Available for sale and Goods Available for Sale (Total of all purchases plus beginning inventory) Less: Units Sold Units in ending inventory Number of units
20 40 30 20 30 140 80 60

Cost per unit

7 8 9 10 11 X

Total extended cost

140 320 270 200 330 $1,260

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: (b) Number of units (c) Cost per unit (d) Total extended cost (b) X (c) = (d)

(a) Purchase Dates

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.

MJC Revised 12/2010

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Weighted Average Inventory Valuation Methods

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

MJC Revised 12/2010

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Weighted Average Inventory Valuation Methods

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) (b) (c) Goods Available for Sale Total units available for Sale 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) (b) Ending units 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.
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Weighted Average Inventory Valuation Methods

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 Total ending cost

(b) Average Cost per unit

(c) Total Cost (a) X (b) = (c)

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.

MJC Revised 12/2010

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