ITPEC FE Morning October 2020 Question 78

Inventory Valuation — Moving Average Method — recalculate unit cost each time new inventory is received.

The formula shown divides total cost (received + in stock) by total quantity (received + in stock), producing a weighted average unit price. This recalculation happens every time new goods arrive — the defining feature of the moving average method.

Why not others:
- (a) Final acquisition cost method — values all inventory at the price of the most recent purchase, no averaging
- (b) FIFO (First-in first-out) — costs are assigned based on the order goods were received, oldest costs used first
- (d) Periodic average method — computes one average at the end of a fixed period (e.g., monthly), not upon each receipt

Key rule: Moving average = recalculate average unit cost at every new receipt; Periodic average = one calculation per period.

AI-generated — may contain errors