How is cost per unit determined in the weighted-average method?

How is cost per unit determined in the weighted-average method?

• A. The total cost of goods available for sale divided by total units available for sale
• B. The cost of the most recently purchased units
• C. The cost of the oldest units only
• D. The ending inventory cost is the same as total cost divided by number of units sold

Answer: (A)

The weighted-average method determines cost per unit by pooling all costs and all units available for sale and then dividing the total cost by the total number of units. This creates a single average cost per unit that is applied to both units sold and units remaining in ending inventory. The idea is to smooth out price fluctuations by spreading costs evenly across all units, rather than assigning the oldest or the most recent prices to specific units. In practice, you combine the beginning inventory cost with all purchases, compute the average cost per unit from the total cost and total units, and then multiply that average by the number of units sold to get cost of goods sold or by the ending units to get ending inventory.

The weighted-average method determines cost per unit by pooling all costs and all units available for sale and then dividing the total cost by the total number of units. This creates a single average cost per unit that is applied to both units sold and units remaining in ending inventory. The idea is to smooth out price fluctuations by spreading costs evenly across all units, rather than assigning the oldest or the most recent prices to specific units. In practice, you combine the beginning inventory cost with all purchases, compute the average cost per unit from the total cost and total units, and then multiply that average by the number of units sold to get cost of goods sold or by the ending units to get ending inventory.