The Average Cost Method for Periodic System Inventory Costing

So few moments ago we were just talking about the paper matter but now we can begin talking about the average cost method for calculating the cost of goods sold and an inhibitory and the average cost not that is really going to give us an average unit cost for each inventory item and then we're going to multiply it by be total amount of items that we've sold to actually get our total cost of goods sold and before we begin

I just wanted two notes that's the average cost method is actually going to yield a different cost of goods sold and and inhibitory number heard the for the periodic and be perpetual system so I'm like the paper map it we're actually going to have to do a calculation up the average cost method for the perpetual and appear ok system separately because they will not yield the same results so able knots yield the same same results so we're going to be doing to use your above the two in which we're going to be covering that periodic system and then an the next two or three tutorials will be calculating the cost of goods sold 19 inventory using the perpetual

I inventory system and the average cost method but now we're just going to be using the periodic system so let's go ahead and actually talk about bath salts thereof get rid of all these illustrations bring up our our table purchases and sales and of course our inventory items which are milk and if you remember from the before a firm on the paper article we were actually were expecting a DUNS now we're historical and then you're slowing movie in its your expense items that we've just recently purchased and they all had different unit costs but the average cost not that we're gonna have the same

the same unit price for each of these inventory items so that when we expense wanna be's inventory items
they will all have the same unit cost so how are we gonna come up with this number hours and 22 cents well there's two ways one that's gonna be the crack map it and one that is an incorrect matter that sometimes people

I'll me messed up on or just like Pamela bed you guys a be have been used be weighted average and no use just the average instead so this would be bien Creek map it which I'm gonna show you guys really quickly and you don't want to be doing this on sometimes people take ten dollars which are the unit costs so they're gonna like we're going to try and determine the average unit costs for it wannabes inventory items of note and bill a blowout up all the unit costs solo se tan plus plus 17 lust which would be sixty two dollars

I think twice 10-15 I which is credit buyer budget buyer yes sixty two dollars and then they'll say well they're
for purchase orders so that must mean that must mean than our hours you know Christ is going to be fifteen dollars and fifty cents but the thing is that it doesn't match up with the actual correct you to cost hurt inventory item every word expense one I one-piece upper inventory units so how are we going to actually come up with the 15 or the 22 cents or we're gonna do you is we're actually going you need to create a weighted average because as you can see

as you can see we can just average hand 15 17 20 divided by four it's because you should be is has a difference amounts I've units for the purchase order and they're all girl different you can only add them up
and divide by 4 if they are the same unit number so if they were all units then we could add up the unit costs
and then just divide by four but because they have different amounts i've units in each purchase order we're going to have to use a weighted average so how are we going to do that we're gonna ready yet rated up

first we're gonna say correct method Europe on top and what we're gonna do is we're just gonna multiply you should be is at the mop and then we're going to you divide by the total units so first let see how many units BRB up three hundred their I'm treating the beginning inventory like a purchase ans because it is up her to her inventory and $300 plus 200 units which is a purchase plus a hundred units was 300 units will be 300 600 you hire 900 units and you traces are 10 dolares

fifteen dollars seventeen dollars and twenty dollars so what's will be the total costs will have three thousand there well have 3,000 there as well well have 1700 for that purchase order and finally the inventory I'm costs are value for that last purchase order will be thousand dollars so in total in total that will be what will be three thousand both the dozen bus 1700 was 6,000 is 13,000 seven hundred and that is
that is what our inventory is worth now

to get the average cost her her you know that inventory in which we're going to expect each unit by we're just got sick total cost which is thirty thousand seven hundred and divided by 900 units and that is going to yield you corrects unit grace so 13,700 divided by 900 units which is fifteen dollars fifteen dollars and 22 sensible repeating sign on top that goes on forever and of course using the cost of goods sold we're just gonna take 15 or 20 cents which is which is the the per-unit costs and we're just going to expand each units for each unit that we've sold

so this we have two sales here we have a 300 a 300 units jailbreak here which is number one and we have a second sale order for 250 units so what's let's break this down individually and we have units sold sorry there are sales said 300 units times times fifteen dollars in 22 cents will be how much they'll be.12 simes 300
is 45x and 250 units will be will be exactly how much is that going to be that's going to be time 16 hours and 22 3,000 and five dollars and that's going to be our cost goods sold number rate there so we'll have what well will find the sum of those to resist for about six six plus through tato by which is 8,000 and 71 which is gonna be our cost gets old and then we just take

the the total you told beginning inventory ands we just subtract our cost of goods sold because that's just how much you get essentially sold in the remainder will be how much we have leftover sewer and inventory will be 5,000 and 29 dollars so that's essentially how the average cost method is going to work you just always creates a weighted average to find the unit cost you'll be expecting her right now and then use most by a by a bee total amount are units that you actually sold to come up with your cost of goods sold

and then you can of course determine your and inhibitory so the next presentation will be talking about Wat Pho even though it's not allowed in Canadian gap or IFRS standards anymore it's actually still allowed in US gaps that we're so going to you showed essentially how to perform that so all see you guys.. Thanks for visit...

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