At May 1, 2018, Kibbee Company had beginning inventory consisting of 200 units with a unit cost of $7. During May, the company purchased inventory as follows: 800 units at $7 600 units at $8 The company sold 1,000 units during the month for $12 per unit. Kibbee uses the average cost method. The average cost per unit for May is

a.$7.000.
b.$7.375.
c.$7.500.
d.$8.000.

Option (b) is correct.

Explanation:

Given that,

Beginning inventory = 200 units with a unit cost of $7

Purchases during May:

800 units at $7

600 units at $8

Number of units sold = 1,000 for $12 per unit

Here, we are using a average cost method,

The average cost per unit for May is simply calculated by dividing the total cost in May by the number of units.

Total cost:

= Beginning inventory + Purchases in May

= (200 × $7) + [(800 × $7) + (600 × $8)]

= $1,400 + ($5,600 + $4,800)

= $11,800

Total number of units:

= Beginning inventory + Purchases in May

= 200 units + (800 units + 600 units)

= 200 units + 1,400 units

= 1,600 units

Therefore, the average cost per unit for May is as follows:

= Total cost in May ÷ Number of units

= $11,800 ÷ 1,600 units

= $7.375

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