Average Cost Method (Periodic Inventory)
Also called the weighted-average method, this costing method pools all the available units into a single batch with an average cost per unit.
Characteristics of the Average Cost Method
- A single average cost is found at the the end of the period
- COGS is based on the average cost at the time of sale
Average Cost Formula:
Example: Average Cost Method (Periodic Inventory)
The following transactions took place during August 2020, all purchases and sales were on account.
Using the weighted average method and periodic inventory system:
- What is the correct amount of cost of goods sold for the month?
- What is the correct amount that should be reported as inventory on August 31st, 2020?