Using the same inventory data, two units sold. Average Cost COGS and ending valuation?

Using the same inventory data, two units sold. Average Cost COGS and ending valuation?

• A. COGS $700, Valuation $200
• B. COGS $600, Valuation $300
• C. COGS $400, Valuation $500
• D. COGS $800, Valuation $100

Answer: (B)

Under the average-cost method, you use a single average cost per unit for the inventory on hand, then apply that average to any units sold and to the units remaining. If two units are sold and the ending inventory value is 300, that ending value implies one unit remains valued at 300. Therefore the average cost per unit is 300. The COGS for the two sold units is 2 × 300 = 600. The ending inventory is 1 unit × 300 = 300. So, the COGS is 600 and the ending valuation is 300.

Under the average-cost method, you use a single average cost per unit for the inventory on hand, then apply that average to any units sold and to the units remaining.

If two units are sold and the ending inventory value is 300, that ending value implies one unit remains valued at 300. Therefore the average cost per unit is 300. The COGS for the two sold units is 2 × 300 = 600. The ending inventory is 1 unit × 300 = 300.

So, the COGS is 600 and the ending valuation is 300.