A company sells 100 units in June. Calculate the cost of goods sold using cost averaging.
| | Units Received | Unit Cost |
| :----- | :------------- | :-------- |
| June 4 | 30 | $2.80 |
| June 11| 80 | $2.20 |
| June 18| 50 | $2.40 |
| June 25| 40 | $2.60 |
[ ? ] per unit
Round to the nearest cent.
Answer (2)
The cost of goods sold (COGS) for 100 units using cost averaging is calculated to be $242. This is derived from a total of 200 units available at an average cost of $2.42 per unit. The total cost of goods available for sale is $484.
;
Calculate the total number of units available: 30 + 80 + 50 + 40 = 200 .
Calculate the total cost of goods available: ( 30 × $2.80 ) + ( 80 × $2.20 ) + ( 50 × $2.40 ) + ( 40 × $2.60 ) = $484 .
Calculate the weighted average cost per unit: 200 $484 = $2.42 .
Calculate the cost of goods sold: $2.42 \times 100 = \boxed{$242}$.
Explanation
Understanding the Problem We are asked to calculate the cost of goods sold (COGS) for 100 units using the cost averaging method. The cost averaging method calculates a weighted average cost per unit based on the total cost of goods available for sale divided by the total number of units available for sale. We will use the provided table to determine the total units, total cost, and then the average cost.
Calculating Total Units First, we need to calculate the total number of units available for sale. We sum the units received on June 4, June 11, June 18, and June 25: 30 + 80 + 50 + 40 = 200 So, there are 200 units available for sale.
Calculating Total Cost Next, we calculate the total cost of goods available for sale. We multiply the units received on each date by their respective unit costs and sum the results: ( 30 × $2.80 ) + ( 80 × $2.20 ) + ( 50 × $2.40 ) + ( 40 × $2.60 ) = $84 + $176 + $120 + $104 = $484 So, the total cost of goods available for sale is $484.
Calculating Weighted Average Cost 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: 200 $484 = $2.42 So, the weighted average cost per unit is $2.42.
Calculating Cost of Goods Sold Finally, we calculate the cost of goods sold (COGS) by multiplying the weighted average cost per unit by the number of units sold (100): $2.42 × 100 = $242 Therefore, the cost of goods sold for 100 units is $242.
Examples
Cost averaging is commonly used in inventory valuation to smooth out price fluctuations. For example, a gas station might use cost averaging to determine the cost of gasoline sold each day. By averaging the cost of different shipments of gasoline, the gas station can avoid large swings in reported profits due to changes in wholesale prices. This provides a more stable view of the business's profitability over time.
