Calculating AVCO Method in Financial Statements

Katie2014

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.

Lucy_M

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:

Katie2014

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