Plant Co. made the following inventory purchases during the month of June. On Ju
ID: 2375038 • Letter: P
Question
Plant Co. made the following inventory purchases during the month of June. On June 26, Plant sold 65 units. If Plant uses the average cost method, how much will the average cost of the units in inventory at June 30th be (round to three decimal places)?Date Quantity Unit Price Total Cost
6/11 50 $20 $1,000
6/13 70 $22 $1,540
6/21 40 $18 $720
6/28 30 $19 $570
190 $3,830
I thought I just needed to add up the unit prices and divide by the total
(20+22+18+19)/4=19.75 but this is wrong. The answer is 20.045. Can anyone tell me how to get this answer?
Explanation / Answer
Remember that on June 26, Plant sold 65 units. So, you must first work out the average cost of the units up until the 6/26. It is $1000 + $1540 + $720 = $3260. You have 160 units at this date so $3260 / 160 = $20.375 average cost per unit. You sold 65 units, so $20.375 * 65 = $1324.375. After the sale, the average cost per unit is $3830 - $1324.375 = $2505.625. You only have 125 units left to sell (190 - 65) so the average cost is $2505.625 / 125 = $20.045