Average Cost Method (Perpetual)
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
- Average cost changes whenever new inventory is added
- COGS is based on the average cost at the time of sale
Average Cost Formula
Average Cost Table Method
Example: Average Cost Method (Perpetual Inventory)
The following transactions took place during August 2020, all purchases and sales were on account.
Using the weighted-average method and the perpetual inventory system:
- What is the correct amount of cost of goods sold for the month of August and what the cost of ending inventory?
- Prepare the journal entry to record the transaction on August 3rd.
- Prepare the journal entry to record the transaction on August 4th.
