Wize University Introduction to Financial Accounting Textbook > Inventory
Average Cost Method (Perpetual Inventory)
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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
Wize Tip
Always find the average cost between a purchase and a sale.
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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.
Practice: Average Cost (Perpetual Inventory)
ABC Inc. had the following transactions affecting inventory during 2020, the company uses the average cost method and the perpetual inventory system:
All transactions are on account.
In recording the journal entry for the sale on April 14th, what is the correct about that should be debited to cost of goods sold?
Round unit costs to 3 decimal places and final answer to the nearest cent.