Calculating AVCO Method in Financial Statements
Katie2014
MAAT, AAT Licensed Accountant Posts: 29 Regular contributor ⭐ 😼 ⭐
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.
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.
0
Comments

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:0 
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.
Katie0
Categories
 All Categories
 1.2K Books to buy and sell
 2.3K General discussion
 18.9K For AAT students
 234 NEW! Qualifications 2022
 133 General Qualifications 2022 discussion
 7 AAT Level 2 Certificate in Accounting
 31 AAT Level 3 Diploma in Accounting
 55 AAT Level 4 Diploma in Professional Accounting
 8.9K For accounting professionals
 23 coronavirus (Covid19)
 272 VAT
 91 Software
 272 Tax
 135 Bookkeeping
 7.3K General accounting discussion
 201 AAT member discussion (AATQB, MAAT, FMAAT and AAT Licensed Accountants and Bookkeepers)
 3.8K For everyone
 39 AAT news and announcements
 352 Feedback for AAT
 2.8K Chat and offtopic discussion
 586 Job postings
 17 Who can benefit from AAT?
 36 Where can AAT take me?
 44 Getting started with AAT
 26 Finding an AAT training provider
 47 Distance learning and other ways to study AAT
 25 Apprenticeships
 65 AAT membership