A company sells 100 units in June. Calculate the cost of goods sold using cost averaging.
| | Units Received | Unit Cost |
| :----- | :------------- | :-------- |
| June 4 | 30 | $2.50 |
| June 11| 60 | $2.00 |
| June 18| 20 | $2.60 |
| June 25| 50 | $2.10 |
$[?]$ per unit. Round to the nearest cent.
Answer (2)
Calculate the total number of units available: 30 + 60 + 20 + 50 = 160 .
Calculate the total cost of goods available: ( 30 × 2.50 ) + ( 60 × 2.00 ) + ( 20 × 2.60 ) + ( 50 × 2.10 ) = 352 .
Calculate the weighted average cost per unit: 160 352 = 2.2 .
Calculate the cost of goods sold: 2.2 × 100 = 220 . The cost of goods sold is 220 .
Explanation
Understanding the Problem We are asked to calculate the cost of goods sold (COGS) using the cost averaging method. This means we need to find the average cost of all units available for sale during the period and then multiply that average cost by the number of units sold.
Calculating Total Units First, we need to calculate the total number of units available for sale. We sum the units received on each of the four dates: 30 + 60 + 20 + 50 = 160 So, there are a total of 160 units available for sale.
Calculating Total Cost Next, we calculate the total cost of goods available for sale. We multiply the number of units received on each date by their respective unit costs and sum the results: ( 30 × 2.50 ) + ( 60 × 2.00 ) + ( 20 × 2.60 ) + ( 50 × 2.10 ) = 75 + 120 + 52 + 105 = 352 The total cost of goods available for sale is $352.
Calculating Average Cost Now, we calculate the weighted average cost per unit by dividing the total cost of goods available for sale by the total number of units available for sale: 160 352 = 2.2 The weighted average cost per unit is $2.20.
Calculating Cost of Goods Sold To find the cost of goods sold (COGS), we multiply the weighted average cost per unit by the number of units sold, which is 100: 2.2 × 100 = 220 The cost of goods sold is $220.
Final Answer Therefore, the cost of goods sold using the cost averaging method is $220.
Examples
Cost averaging is a common accounting method used to determine the cost of goods sold (COGS) and inventory valuation. For example, a bakery might use cost averaging to calculate the cost of flour used in their products. If they purchase flour at different prices throughout the month, they would calculate the average cost of flour and use that to determine the cost of flour in each batch of baked goods. This helps them to accurately track their expenses and determine their profitability.
To calculate COGS using cost averaging, we first found that 160 units were available for sale, costing a total of $352. The average cost per unit was then calculated as $2.20. Therefore, the cost of goods sold for selling 100 units is $220.
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