Sheridan Company uses the periodic inventory system. For the current month, the beginning inventory consisted of 485 units that cost $66 each. During the month, the company made two purchases: 725 units at $69 each and 364 units at $71 each. Sheridan Company also sold 1198 units during the month. Using the average cost method, what is the amount of ending inventory? (Round average cost per unit to 2 decimal places, e. g. 21.48.)

Value of closing inventory = $25771.04

Explanation:

To calculate the value of ending inventory under a periodic average cost method, we will calculate the average price per unit of inventory at the end of the month. To calculate the average price per unit, we simply divide the total cost of the inventory by the total number of units for the month.

Average cost per unit = Total cost of all units for the month / Total units available for the month

Total cost of all units:

Beginning inventory (485 * 66)            32010

Purchase 1     (725 * 69)                        50025

Purchase 2     (364 * 71)                        25844

Total                                                       107879

Total Units

Beginning Inventory     485

Purchase 1                     725

Purchase 2                    364

Total                              1574

Average cost per unit =   107879 / 1574

Average cost per unit = $68.54

Units of closing inventory = 1574 - 1198     =   376 units

Value of closing inventory =  376 * 68.54

Value of closing inventory = $25771.04

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