Assume the companies use a periodic inventory system
Cinnamon Corp. started business in 2017 and uses the weighted average cost method. During 2017, it purchased 45,000 units of inventory at €10 each and sold 40,000 units for €20 each. In 2018, it purchased another 50,000 units at €11 each and sold 45,000 units for €22 each. Its 2018 cost of sales (€ thousands) was closest to:
a. €490.
b. €491.
c. €495.
can anyone please tell me an easy way to solve this question
Even I had a doubt in such a question , I can share my learning. See Periodic inventory system means that we update the books at some periodic end say week end or month end. So we cumulate the value of inventory and then calculate the periodic cost of sales .
So we will do (5000 x 10) + ( 50000 x 11) / 55000 to get the per unit value of inventory purchased. Then multiply it by 45000 we get Option B as the answer.
Hope this helps !
2017 me 45000 units kharide aur 40K beche. Bache 5k units @ 10. So, for year 2018 beginning inv is 50k.
Now in 2018 the firm buys 50k units @ 11 and sells 45K units. So, the units sold for 2018 is 45k. Now lets calculate avg cost price per unit. Beginning: 5K units @ 10.
In 2018, 50K units @ 11. So, avg cost = [(50k x 11)+(5k x 10)]/(50k+5k )= 10.91
Thus COGS = 10.91 x 45000 = 490.9 or 491