accounting practices 501 chapter 6 inventory costing methods (wac) cathy saenger, senior lecturer,...
TRANSCRIPT
Accounting Practices 501
Chapter 6
Inventory costing methods
(WAC)
Cathy Saenger, Senior Lecturer, Eastern Institute of Technology © Pearson 2011
Weighted Average
• For this system of movement in inventory, we throw it all together and calculate a weighted average cost price
• Suitable for bulk inventory
Ch6E - WAC 2
The following slides give an example of a perpetual inventory system using the WAC
method
Weighted AverageDate/details IN (purchases) OUT (Cost of sales) Balance (value of
inventory)
Ch6E - WAC 3
Aug 1 Balance 350 units @ $2 per unit (GST excl)
Aug 1 Balance
350 x $2 = $700
Weighted AverageDate/details IN (purchases) OUT (Cost of sales) Balance (value of
inventory)
Ch6E - WAC 4
Aug 4Purchased 150 units @ $3 per unit (GST excl)
Aug 1 Balance
350 x $2 = $700Aug 4 Purch =$1,15
0150 x $3 = $450
$2.30500 x
Find the total number of items, then the total amount and then divide the amount by the number of items (1,150 ÷ 500)
Weighted AverageDate/details IN (purchases) OUT (Cost of sales) Balance (value of
inventory)
Ch6E - WAC5
Aug 1 Balance
350 x $2 = $700Aug 4 Purch =$1,15
0150 x $3 = $450
$2.30500 x
Date Account Titles
4/8 450.00
Accounts Payable 517.50
Being entry to record credit purchase
GST Paid 67.50
Date Account Titles Ref no Debit Credit
General Journal
Inventory
Stock shown at GST exclusive
Weighted AverageDate/details IN (purchases) OUT (Cost of sales) Balance (value of
inventory)
Ch6E - WAC 6
Aug 12 Sold 400 units @ $6 per unit (GST excl
Aug 1 Balance
350 x $2 = $700Aug 4 Purch =$1,15
0150 x $3 = $450
$2.30500 x
The Cost of Sales is the weighted average price
Aug 12 Sale = $230400 x $2.30 = $920
$2.30100 x
Date/details IN (purchases) OUT (Cost of sales) Balance (value of inventory)
Ch6E - WAC 7
Aug 1 Balance
350 x $2 = $700Aug 4 Purch =$1,15
0150 x $3 = $450
$2.30500 xAug 12 Sale
(400 x $6)= $230400 x $2.30 =
$920$2.30100
x
Date Account Titles Ref no Debit Credit
12/8 Accounts Receivable (400x$6 + GST) 2,760
General Journal
Sales (400x$6) 2,400
GST Collected 360
920
Inventory 920
Cost of Sales
Weighted AverageDate/details IN (purchases) OUT (Cost of sales) Balance (value of
inventory)
Ch6E - WAC 8
Aug 21 Purchased 70 units @ $4 (GST excl)
Aug 1 Balance
350 x $2 = $700Aug 4 Purch =$1,15
0150 x $3 = $450
$2.30500 xAug 12 Sale = $230400 x $2.30 =
$920$2.30100
x
Find the total number of items, then the total amount and then divide the amount by the number of items ($510 ÷ 170)
Aug 21 Purch
= $51070 x $4 = $280 $3.00170 x
Weighted AverageDate/details IN (purchases) OUT (Cost of sales) Balance (value of
inventory)
Ch6E - WAC 9
Aug 29 Sold 110 units @ $6 (GST excl)
Aug 1 Balance
350 x $2 = $700Aug 4 Purch =$1,15
0150 x $3 = $450
$2.30500 xAug 12 Sale = $230400 x $2.30 =
$920$2.30100
xAug 21 Purch
= $51070 x $4 = $280 $3.00170 x
The Cost of Sales is the weighted average price
Aug 29 Sale = $180110 x $3.00 = $330
$3.0060 x
Weighted AverageDate/details IN (purchases) OUT (Cost of sales) Balance (value of
inventory)
Ch6E - WAC 10
Aug 31 Stock counts shows 59 units in stock
Aug 1 Balance
350 x $2 = $700Aug 4 Purch =$1,15
0150 x $3 = $450
$2.30500 xAug 12 Sale = $230400 x $2.30 =
$920$2.30100
xAug 21 Purch
= $51070 x $4 = $280 $3.00170 xAug 29 Sale = $180110 x $3.00 =
$330$3.0060 x
Aug 31 Stock loss = $1771x $3.00 = $3.00 $3.0059 x
Weighted AverageDate/details IN (purchases) OUT (Cost of sales) Balance (value of
inventory)
Ch6E - WAC 11
Aug 1 Balance
350 x $2 = $700Aug 4 Purch =$1,15
0150 x $3 = $450
$2.30500 xAug 12 Sale = $230400 x $2.30 =
$920$2.30100
xAug 21 Purch
= $51070 x $4 = $280 $3.00170 xAug 29 Sale = $180110 x $3.00 =
$330$3.0060 x
Aug 31 Stock loss = $1771x $3.00 = $3.00 $3.0059 x
Now we can find the total of the Cost of Sales and calculate Gross Profit
$1,253 $177
Date/details IN (purchases) OUT (Cost of sales) Balance (value of inventory)
Ch6E - WAC 12
Aug 1 Balance
350 x $2 = $700Aug 4 Purch =$1,15
0150 x $3 = $450
$2.30500 xAug 12 Sale = $230400 x $2.30 =
$920$2.30100
xAug 21 Purch
= $51070 x $4 = $280 $3.00170 xAug 29 Sale = $180110 x $3.00 =
$330$3.0060 x
Aug 31 Stock loss = $1771x $3.00 = $3.00 $3.0059 x
$1,253 $177
Sales [(400 + 110) x $6) $3,060Less Cost of Sales $1,253
$1,807Gross Profit
And the value of our Inventory is $177
Weighted Average
• You could find a discrepancy in figures when using the WAC method. This would be due to rounding. We have to remember that this is a computerised system with higher accuracy than we can calculate
Ch6E - WAC 13
Ch6E - WAC 14
Man, I’m so tired after all those calculations!!!