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Moving Average

The document discusses different inventory systems including periodic and perpetual, and how to calculate ending inventory and cost of goods sold using FIFO and weighted average methods. It provides an example calculating ending inventory of 580 units and $7,360 cost using FIFO for a company with beginning inventory of 200 units, a purchase of 500 units, and a sale of 320 units. It also demonstrates calculating a weighted average cost and cost of goods sold.

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463 views3 pages

Moving Average

The document discusses different inventory systems including periodic and perpetual, and how to calculate ending inventory and cost of goods sold using FIFO and weighted average methods. It provides an example calculating ending inventory of 580 units and $7,360 cost using FIFO for a company with beginning inventory of 200 units, a purchase of 500 units, and a sale of 320 units. It also demonstrates calculating a weighted average cost and cost of goods sold.

Uploaded by

dorpianabsa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Moving average

Before we discuss the moving average, let’s recall some topics

There are two types of inventory system

1. Periodic inventory systems – In layman’s terms, periodic means occurring or recurring at regular
intervals. In this system the “inventory” account is only updated when an entity conduct a
physical count of inventory.
2. Perpetual inventory system – The word “perpetual” means continuing forever. In this system
the inventory account is updated each time a purchase or a sale is made.

Love trading buy and sells product A. Movements in the inventory of product A during the period are as
follows:

Date Transaction Units Unit cost Total cost


Jan 1 Beginning 200 ₱10 ₱2000
inventory
7 Purchase 500 12 6000
12 Sale 320
21 Purchase 200 14 2800

Compute for the ending inventory and cost of salesusing the FIFO formula.

Compute for ending inventory units.

Date Transaction Units


Jan 1 Beginning inventory 200
7 Purchase 500
12 Sale (320)
21 Purchase 200
Ending inventory (in units) 580
Compute for ending inventory at cost

Unit Unit cost Total cost


From Jan 21. purchase 200 ₱14 2800
From Jan 7 purchase 380 12 4560
Ending inventory (at 7360
cost)

Compute for cost of slaes

Date Transaction Units Unit cost Total cost


Jan 1 Beginning 200 ₱10 ₱2000
inventory
7 Purchase 500 12 6000
21 Purchase 200 14 2800
Total goods 900 10800
available for sale
Less: Ending 580 7360
inventory
Cost of sales 320 3440

Weighted average

Compute for the ending inventory and cost of sales using the weighted average formula. The average is
calculated on periodic basis.

Date Transaction Units Unit cost Total cost


Jan 1 Beginning 200 ₱10 ₱2000
inventory
7 Purchase 500 12 6000
21 Purchase 200 14 2800
Total goods 900 10800
available for sale

Formula for Weighted average cost

Weighted average cost = Total goods available for sale (In peso)/ Total goods available for sale (In units)

10800
Weighted Av .Cost = =12
900
Now we know how to get the weighted average of periodic inventory system, we can now move to the
weighted average of perpetual inventory system

The weighted average method is also known as the moving average method when it is used with the
perpetual system.

Pas, paragraph 27 stated that the weighted average may be calculated on periodic basis or as each
additional shipment is received depending upon the circumstances of an entity.

Stock cards are use under the perpetual inventory system to determine the quantities and balances of
goods on hand and good sold without the need of conducting physical count of inventories

Date Transaction Units Unit cost Total cost


January 1 Balance 3000 ₱200 ₱600000
8 Sale (1875) 200 (375000)
Balance 1125 200 225000
18 Purchase 2625 210 551250
Total 3750 207 776250
22 Sale (3000) 207 621000
Balance 750 207 155250
31 Purchase 1875 220 412500
Total 2625 216 567750

Cost of goods sold from the stock card

DATE TRANSACTION TOTAL COST


Jan 8 Sale ₱375000
22 Sale 621000
Cost of goods sold 996000

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