Expert: Arthur Naman - 10/27/2008

Question
Moving Average Method

Product A/c No         101
Supplier A/c No         201
Cash   A/c No         102
Product Profit A/c No      401
Product Loss A/c No      301

Date   Trans      Rate   QTY   Amount   AverageCost   BalanceQTY   BalanceAmount
1 Jan   Begin Inventory   10.00   700   7000   10.00      700      7000
3 Jan   Purchase INV1   12.00   100   1200   10.25      800      8200
4 Jan   Sale      10.25   500   5125   10.25      300      3075
5 Jan   Purchase INV2   14.00   600   8400   12.75      900      11475
6 Jan   Purchase INV3   15.00   200   3000   13.16      1100      14475
7 Jan   Return INV1   10.00   700   7000   ??.??      400      ??????
8 Jan   Sale      ??.??   200   ????   ??.??      200      ??????
9 Jan   Return INV2   ??.??   50   ????   ??.??      150      ??????
10Jan   Return INV3   ??.??   150   ????   ??.??      0      0

Please explain me , how should I calculate average cost under “Moving Average Cost Method” inventory system after each transaction?


Answer
Moving average cost means an inventory costing method under which
an average unit cost is computed after each acquisition by adding the cost of the newly acquired units to the cost of the units of inventory on hand and dividing this figure by the new total number of units.

At any given point in time, the average cost will have been calculated for the units on hand. The total cost is then the average cost multiplied by the total units on hand.

For purchases, add the total units purchased to the total on hand to get a revised total. Then add the cost of the newly acquired units to the total cost of the existing units on hand to get a new total. The moving average cost is then the total cost including the newly acquired units divided by the total number of units including the newly acquired units.

With that explanation, I am assuming this is a homework question of some sort and this is not the forum for that purpose. Please do your own homework.

Is there something you do not understand about the explanation provided for moving average cost?