ITPEC FE Morning April 2018 Question 79

Inventory Valuation — Periodic Average Method

The question asks which method values inventory by dividing total purchase amount by total quantity purchased.

This is exactly the definition of the periodic average method: compute one weighted average unit cost at the end of the period using all purchases.

Why not others:
- a) FIFO: Issues inventory at the cost of the earliest purchases — no averaging involved
- b) ✅ Periodic average method: Total cost ÷ total quantity = single average unit price for the period
- c) Moving average method: Recalculates average cost after each new purchase, not once at period end
- d) Final acquisition cost method: Values all remaining inventory at the price of the last purchase only

Key rule: "Total ÷ total = periodic average; recalculate after each receipt = moving average."

AI-generated — may contain errors