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Good mornig sir, sorry to bother you. I have question regarding to the inventory valuation using AVCO. There is a question in bpp text book which it uses the formula [ total cost/(opening quantity+quantity received)] to calculate the price per unit. I understood what the formula does. But I use the tradition method which you showed us in lecture but yields a different result. Here is the question:
Buy 10units at 300 each
Buy 12 units at 250 each
Sell 8 units at 400 each
Buy 6 units at 200 each
Sell 12 units at 400 eachThe answer is 2057.12 and my result was 2007.29.
Sorry for this long question but would be much appreciated if you could help me with it!
2057.12 is calculated using the average cost of all units purchased. That is an acceptable method but is rarely if ever used in practice and is unlikely for the exam.
The correct average cost method is as I explain in my lecture and does give your answer of 2007.29 which is the correct answer 🙂
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