Jameson Company uses average cost and a perpetual system. On January 1, the company had 600 units of inventory at an average cost of $55 per unit for a total cost of $33,000. The company purchased and sold inventory during the month as follows: Purchases: January 10: 1,000 units at $59 = $59,000 January 20: 800 units at $62 = $49,600 Sales: January 12: 1,200 units January 28: 900 units What is the average cost per unit that should be used to determine the cost of the units sold on January 28?

AVERAGE COST = $60.50

Explanation:

January 1:

Inventory unit = 600

Cost per unit = $55

Total cost = $33,000

January 10:

Purchased inventory unit = 1000

Cost per unit = $59

Total = $59,000

January 12:

Unit sold = 1200

January 20:

Purchased inventory unit = 800

Cost per unit = $62

Total = $49,600

Average cost of inventory prior to January 12 sales :

[Cost(January 1) + Cost(January 10)] ÷ unit (January 1) + unit(January 10)

= $(33,000 + 59,000) ÷ (600 +1000)

= $92,000 ÷ 1600 = $57.50

Sales made on January 12: 1200 units

Total units left in inventory :

1600 - 1200 = 400 units

Average cost of inventory after January 20 inventory purchase:

(Unit × cost per unit) ÷ total unit

Average cost =[ (400 × $57.50) + (800 × $62)] ÷ (400 + 800)

Average cost = ($23,000 + $49,600) ÷ 1200

Average cost = $(72,600 ÷ 1200) =

$60.50

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