# Periodic (weighted) Average

Question: Not surprisingly, averaging follows a path similar to that of the previous examples. Costs are either

moved to cost of goods sold at the end of the year (periodic or weighted average) or at the time of each new sale

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(perpetual or moving average). The only added variable to this process is the calculation of average cost. In the

operation of an averaging system, when and how is the average cost of inventory determined?

Answer: Periodic (weighted) average. In the problem being examined here, Mayberry Home Improvement Store

eventually held twelve bathtubs. Four of these units were on hand at the start of the year and the other eight were

acquired during the period. The beginning inventory cost \$440 and the new purchases were bought for a total of

\$1,048. Thus, these twelve units had a total cost of \$1,488 (\$440 + \$1,048) or \$124 per bathtub (\$1,488/12 units).

When applying a weighted average system, this single average is the basis for both the ending inventory and cost

of goods sold to be included in the company’s financial statements. No item actually cost \$124 but that average is

applied to all units.

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