A company sells 100 units in June. Calculate the cost of goods sold using cost averaging.
| | Units Received | Unit Cost |
| :----- | :------------- | :-------- |
| June 4 | 60 | $2.20 |
| June 11 | 20 | $2.90 |
| June 18 | 40 | $2.30 |
| June 25 | 60 | $2.20 |
$ \square per unit
Answer (2)
Calculate the total number of units available: 60 + 20 + 40 + 60 = 180 .
Calculate the total cost of goods available: ( 60 × $2.20 ) + ( 20 × $2.90 ) + ( 40 × $2.30 ) + ( 60 × $2.20 ) = $414 .
Calculate the weighted average cost per unit: 180 $414 = $2.30 .
The cost of goods sold per unit is $2.30 .
Explanation
Understanding the Problem We are asked to calculate the cost of goods sold (COGS) using the cost averaging method. This method calculates a weighted average cost for all available units and then multiplies 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 date: 60 + 20 + 40 + 60 = 180 So, there are a total of 180 units available for sale.
Calculating Total Cost Next, we calculate the total cost of goods available for sale by multiplying the units received on each date by their respective unit costs and summing the results: ( 60 × $2.20 ) + ( 20 × $2.90 ) + ( 40 × $2.30 ) + ( 60 × $2.20 ) = $132 + $58 + $92 + $132 = $414 Thus, the total cost of goods available for sale is $414.
Calculating Average Cost per Unit 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: 180 $414 = $2.30 The weighted average cost per unit is $2.30.
Calculating Cost of Goods Sold Finally, we calculate the cost of goods sold by multiplying the weighted average cost per unit by the number of units sold (100): $2.30 × 100 = $230 Therefore, the cost of goods sold for the 100 units is $230.
Final Answer The cost of goods sold using the cost averaging method is $2.30 per unit.
Examples
Cost averaging is useful in many real-life scenarios. For example, imagine you're managing a grocery store's inventory of apples. Throughout the week, you receive shipments of apples at varying costs due to supplier prices and transportation fees. To simplify accounting and pricing, you use the cost averaging method to determine the average cost of an apple. This helps you set a consistent retail price, manage profit margins, and avoid frequent price changes that could confuse customers. By tracking the total cost and total number of apples, you can easily calculate the average cost and apply it to sales, providing a stable and predictable pricing strategy.
The cost of goods sold using the cost averaging method is $230 for the 100 units sold. This was calculated by determining the total number of units available, the total cost of goods, the average cost per unit, and then applying this average to the units sold. The average cost per unit was found to be $2.30, leading to a COGS of $230 for the 100 units sold.
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