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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Kit Question Kaplan
If an entity uses the continuous weighted average cost method to value closing inventory, which of the following statements is true?
A) Unit average cost is recalculated each time there is a purchase of inventory
B) Unit average cost is calculated once only at the end of an accounting period
C) Unit average cost is recalculated each time there is a sale of goods
D) Unit average cost is recalculated each time there is a purchase or a sale
Answer is A.
Why C is incorrect? Conclusion is same for both. We either take average for every purchase or take average before any sale will give same results.
Like we have opening inventory 5 units at 25. We purchased 10 units for 60. We purchased 20 units for 100. We sold 20 goods.
Average cost per unit (5.286 here) would be equal in both cases. Either take before any sale or after any purchase?
When there is a sale we do not recalculate the average unit cost, we subtract the sales using the average cost per unit that has already been calculated after the previous purchase.
Thank you professor.
You are welcome.
