27 May, 10:22

# In its first month of operations, Sheffield Corp. made three purchases of merchandise in the following sequence:(1) 155 units at \$8,(2) 600 units at \$9, and(3) 105 units at \$10. Collapsequestion part (a1) Calculate the weighted-average unit cost. (Round answer to 2 decimal places, e. g. 15.25.) Weighted-average unit cost \$enter the Average unit cost in dollars rounded to 2 decimal places

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1. 27 May, 13:30
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Weighted average cost = 8.94 per unit

Average cost = \$9

Explanation:

The weighted average cost o of valuation of inventory uses weighted average price. The weighted average price is computed by dividing total cost of quantity purchased till date by the quantity purchased. This average price is impacted by the relative weight (quantity) of the batches that make up the stock till date.

This price re-computed every time a new batch is received

The weighted average price for Sheffield

= (155 * \$8) + (600 * \$8) + (105 * \$10) / (155+600+105) units

= 7690/860 units

= 8.94 per unit

Average unit cost is a simple average method. It has the problem of been influenced by extreme prices during volatile periods.

Average unit cost

= (\$8 + \$9 + \$10) / 3

= \$9 per unit