Weighted Average Method

A

Under the weighted average method, inventory is priced at the average cost of the goods available for sale (Beginning inventory plus purchases during the period).

In the weighted average method, the ending inventory units are priced at the average cost per unit. Therefore, the correct answer is A. average price.

The weighted average method is a cost flow assumption used in inventory accounting. It assumes that the cost of goods sold and ending inventory are determined based on the average cost of all units available for sale during the accounting period. This method takes into account the cost of both old and new inventory items when calculating the average cost.

To calculate the average cost per unit, you divide the total cost of goods available for sale by the total number of units available for sale. This average cost is then applied to the units in ending inventory to determine their value.

Let's consider an example to illustrate this:

Suppose a company has the following information for a particular inventory item:

• Beginning inventory: 100 units at a cost of $10 per unit
• Purchases during the period: 200 units at a cost of $12 per unit
• Sales during the period: 150 units

To calculate the average cost per unit, you would add up the total cost of goods available for sale, which is the beginning inventory cost plus the purchases cost: (100 units * $10 per unit) + (200 units * $12 per unit) = $1,000 + $2,400 = $3,400.

The total number of units available for sale is the beginning inventory units plus the purchases units: 100 units + 200 units = 300 units.

The average cost per unit is calculated by dividing the total cost by the total number of units: $3,400 / 300 units = $11.33 per unit (rounded to two decimal places).

Now, let's say the company has 50 units of the inventory item in its ending inventory. Using the weighted average method, the ending inventory value would be 50 units * $11.33 per unit = $566.50.

Therefore, based on the weighted average method, the ending inventory units are priced at the average cost per unit, which is option A. average price.