The following lots of a Commodity P were available for sale during the year. Beginning inventory 5 units at $61 First purchase 15 units at $63 Second purchase 10 units at $74 Third purchase 10 units at $77 The firm uses the periodic system, and there are 20 units of the commodity on hand at the end of the year. What is the year-end inventory balance using the average cost method? A. $1,380.

B. $1,375.

C. $1,510.

D. $1,250.

The answer is $1,380

Explanation:

Beginning. 5 units at $61 -

5 x 61 = $305

First purchase 15 units at $63 -

15 x 63 = $945

Second purchase 10 units at $74 - 10 x 74 = $740

Third purchase 10 units at $77 -

10 x 77 = $770

Total cost of inventory is

$305 + $945 + $740 + $770

=$2,760

Total cost of units:

5 + 15 + 10 + 10

=40 units

its average is

$2,760:40units

=$69

Therefore, year-end inventory balance using the average cost method is:

$69 x 20

$1,380