ITPEC FE Morning October 2020 Question 78
Which of the following is a method of inventory asset valuation to calculate the inventory unit price by the expression as shown below each time that a new inventory asset is received?
(The costs of goods received + The costs of goods in stock) /
(The quantity of goods received + The quantity of goods in stock)
Explanation
Moving average method — the unit price is recalculated as a weighted average every time goods are received.
The expression divides the total cost of the stock on hand plus the new receipt by the total quantity, and it is applied at each receipt, so the average "moves" with every purchase. Issues between receipts are valued at the current average.
Example: 100 units in stock at 10 yen and 50 units received at 16 yen give a new unit price of (1,000 + 800) ÷ (100 + 50) = 12 yen.
Answer (c)
Why not others:
- •(a) Final acquisition cost method — values the whole inventory at the unit price of the most recent purchase; nothing is averaged
- •(b) First-in first-out method — assumes the oldest goods are issued first, so the ending stock carries the latest purchase prices; no average is taken
- •(d) Periodic average method — computes one average for the whole period (opening stock plus all receipts of the period), not a new one at each receipt
Key rule: Both average methods use total cost ÷ total quantity; the moving average recalculates at every receipt, the periodic average once per period.
Corporate Activities · AI-written, may contain errors
This question comes from an official ITPEC past paper. ITPEC Practice is an independent study tool and is not affiliated with ITPEC. See the official FE past-paper collection or Report an issue.