Calculating AVCO Method in Financial Statements

Katie2014Katie2014 New MemberPosts: 29MAAT, AAT Licensed Accountant
Hi, I was hoping someone could help me to understand how to calculate one of the questions from the AAT's 2nd Practice Assessment. The question says:

Hereford values inventories at the Weighted Average Cost Method (AVCO). At 1 July 20X0 there were 50 units in inventory valued at £8 each. On 9 March 20X1 30 units were purchased for £12 each and on 12 May 20X1 a further 20 units were purchased for £15 each. On 27 June 20X1 40 units were sold for £18 each. What is the value of closing inventory at 30 June 20X1? The answer is £636 however I cannot work out how to calculate it. If possible could someone please help?

Thank you.

Comments

  • Lucy_MLucy_M Feels At Home Posts: 136Registered
    Hi, AVCO is the total amount spent divided by the total goods bought so:

    50 x £8 = £400
    30 x £12 = £360
    20 x £15 = £300
    Grand total of 100 @ £1060 .

    £1060 / 100 = £10.60 each.

    40 sold @ £10.60 each is £424.

    Therefore the value of the closing inventory is £1060 - £424 = £636.

    (Be careful, if there is more than one sale, to take it a step at a time!)

    Hope that helps?

    Lucy

    So:
  • Katie2014Katie2014 New Member Posts: 29MAAT, AAT Licensed Accountant
    Hi Lucy, thank you for your help with this. As the question said that 40 units were sold at £18 each, it completely threw me!

    Thank you.

    Katie
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