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FIFO and WAC for inventory valuation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › FIFO and WAC for inventory valuation

  • This topic has 1 reply, 2 voices, and was last updated 4 months ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • May 30, 2023 at 12:02 am #685421
    Aleezah
    Participant
    • Topics: 6
    • Replies: 7
    • ☆

    Appleby buys and sells inventory during the month of August as follows:
    Opening inventory 100 units $2.52/unit
    4 August Sales 20 units
    8 August Purchases 140 units $2.56/unit
    10 August Sales 90 units
    18 August Purchases 200 units $2.78/unit
    20 August Sales 180 units
    The periodic weighted average for the month is calculated as follows:
    Total value of inventory (opening inventory plus purchase costs during the month) divided
    by total units (opening inventory plus purchase costs during the month).

    Which of the following statements is true?

    A Closing inventory is $19.50 higher when using the FIFO method instead of the periodic
    weighted average.
    B Closing inventory is $19.50 lower when using the FIFO method instead of the periodic
    weighted average.
    C Closing inventory is $17.50 higher when using the FIFO method instead of the periodic
    weighted average.
    D Closing inventory is $17.50 lower when using the FIFO method instead of the periodic
    weighted average.

    Answer is A)

    > Please help me find closing inventory valuation. According to FIFO method, I’m getting correct valuation of $417 but I have tried several times according to WAC method, I am not getting any answer similar to the options. Using WAC, my C.I value is 402.3 and 417- 402.3 = 14.7 difference which has no options.

    May 30, 2023 at 9:14 am #685447
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 53169
    • ☆☆☆☆☆

    It is because they are using the periodic weighted average, which is not very common but is defined in the question.

    To get the unit cost you add up the cost of the opening inventory and all of the purchases and then divide by the total units.

    So it is ((100 x $2.52) + (140 x $2.56) + (200 x $2.78)) / 440 = $2.65 per unit.

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