The following units of an inventory item were available for sale during the year: Beginning inventory 10 units at $50 First purchase 17 units at $52 Second purchase 27 units at $53 Third purchase 19 units at $55 The firm uses the periodic inventory system. During the year, 26 units of the item were sold. The value of ending inventory rounded to the nearest dollar using average cost is (Round average cost per unit to three decimal place.) a.$1,300 b.$1,332 c.$2,485 d.$1,416

The correct answer is C

Explanation:

The formula for computing the ending inventory through using the average cost is as:

Ending Inventory = Beginning Inventory + Purchases - COGS (Cost of goods sold)

where

Beginning inventory = Units * Price

= 10 * $50

= $500

Purchases = First Purchase + Second Purchase + Third Purchases

Purchases = Units * Price + Units * Price + Units * Price

Purchases = 17 * $52 + 27 * $53 + 19 * $55

Purchases = $884 + $1,431 + $1,045

Purchases = $3,360

COGS = Units * Price

COGS = 26 * Price

COGS = 26 * $53

COGS = $1,378

Price is computed as:

Price = $50 + $52 + $53 + $55 / 4

Price = $52.5

Putting the values above:

Ending Inventory = $500 + $3,360 - $1,378

Ending Inventory = $2,485