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Costing method |
  
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Costing method |
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MYBOS is using weighted average method. Here is an example of how purchases and sales affect average cost per item:
Day 1
| • | Beginning inventory 5 units @ $500/unit = $2,500 |
| • | Purchase 20 units @ $550/unit = $11,000 |
| • | Average cost = ($2,500 + $11,000)/25 = $540/unit |
Day 2
| • | Sales 21 units |
| • | Balance: 4 units @ $540 = $2,160 |
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Day 3
| • | Purchase 6 units @ $600/unit = $3,600 |
| • | Purchase 10 units @ $620/unit = $6,200 |
| • | Average cost = ($2,160 + $3,600 + $6,200)/20 = $598/unit |
Average cost is re-calculated on every purchase.