Maxim Corp. has provided the following information about one of its products: Date Transaction Number of Units Cost per Unit
1/1 Beginning Inventory 200 $140
6/5 Purchase 400 $160
11/10 Purchase 100 $200
During the year, Maxim sold 400 units. What is cost of goods sold using the average cost method?
a. $50,000.
b. $64,000.
c. $62,000.
d. $48,000.

d. $48,000

Explanation:

The calculation of ending inventory using average cost method is as seen below;

Total units = 200 + 400 + 100

Total units = 700

Total cost = (200 × $140) + (400 × $160) + (100 × $200)

Total cost = $28,000 + $64,000 + $20,000

Total cost = $112,000

Average cost per unit = Total cost ÷ Total unit

Average cost per unit = $112,000 ÷ 700

Average cost per unit = $160

Ending inventory = Total units - Units sold

Ending inventory = 700 - 400

Ending inventory = 300

Therefore, cost of ending inventory

= Ending inventory × Average cost per unit

= 300 × $160

= $48,000

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