This slide shows a table for 1/01/Y2 inventory, 1/11/Y2 sale and 1/22/Y2 purchase in three rows, and units received, cost per unit, units sold and units on hand as column heads. The inventory shows the unit cost of $8.00 and 3,200 units on hand; 1,600 units are sold and 1,600 units on hand; and 4,800 units received at $9.60 cost and 6,400 units are on hand.

 Ashe Co. recorded the following data pertaining to raw material × during January year 2:

This slide shows a table for 1/01/Y2 inventory, 1/11/Y2 sale and 1/22/Y2 purchase in three rows, and units received, cost per unit, units sold and units on hand as column heads. The inventory shows the unit cost of $8.00 and 3,200 units on hand; 1,600 units are sold and 1,600 units on hand; and 4,800 units received at $9.60 cost and 6,400 units are on hand.

The moving-average unit cost of × inventory at January 31, year 2, is
$8.80
$8.96
$9.20
$9.60

Answer

$9.20

 You Answered Correctly!
This answer is correct. The moving average method requires that a new unit cost be computed each time goods are purchased; thereafter it must be used with perpetual records.  A recomputation of unit cost is not performed when goods are sold because the inventory account is simply credited at the average price. After the 1/11/Y2 issue, Ashe has on hand 1600 units (3200 − 1600) at a cost of $8.00 each.  After the 1/22/Y2 purchase, Ashe has on hand 6400 units at a total cost of $58,880 (see computation below).



Units         Cost         Extension
1,600    ×    $8.00    =    $12,800
4,800    ×    $9.60    =     46,080
6,400                   $58,880


Therefore, the moving-average unit cost is $9.20 ($58,880 ÷ 6,400).  Note that since 1/4 of the units cost $8.00 and 3/4 cost $9.60, a shortcut approach is:  (1/4 × $8.00) + (3/4 × $9.60) = $9.20.