Kenya Sweets Ltd. Made the following purchases of new Amigo Chocolate products during 2019:
- 10th January 2019: - 1,000 Units @ Ksh. 28.00 each
- 14th February 2019: - 1,500 Units @ Ksh. 28.20 each
- 17th March 2019: - 3,000 Units @ Ksh. 28.40 each
- 18th June 2019: - 2,500 Units @ Ksh. 28.55 each
Kenya Sweets Limited sold only one batch of 4,200 Units of Amigo Chocolate to its biggest customer for a total sales price of Ksh. 159,600. This happened on 2nd May 2019.
Calculate the closing inventory using WEIGHTED AVERAGE METHOD.
To calculate the closing inventory using the Weighted Average Method, you will need to determine the weighted average cost per unit and then multiply it by the number of units remaining in the inventory. Here's how you can do it:
1. Calculate the total cost of purchases:
- On 10th January: 1,000 units × Ksh. 28.00 = Ksh. 28,000
- On 14th February: 1,500 units × Ksh. 28.20 = Ksh. 42,300
- On 17th March: 3,000 units × Ksh. 28.40 = Ksh. 85,200
- On 18th June: 2,500 units × Ksh. 28.55 = Ksh. 71,375
Total cost of purchases = Ksh. 28,000 + Ksh. 42,300 + Ksh. 85,200 + Ksh. 71,375 = Ksh. 226,875
2. Calculate the total number of units purchased:
Total units purchased = 1,000 + 1,500 + 3,000 + 2,500 = 8,000 units
3. Calculate the weighted average cost per unit:
Weighted average cost per unit = Total cost of purchases ÷ Total units purchased
Weighted average cost per unit = Ksh. 226,875 ÷ 8,000 = Ksh. 28.36 (rounded to two decimal places)
4. Calculate the closing inventory:
Number of units remaining = Total units purchased - Units sold
Number of units remaining = 8,000 - 4,200 = 3,800 units
Closing inventory = Weighted average cost per unit × Number of units remaining
Closing inventory = Ksh. 28.36 × 3,800 = Ksh. 107,968 (rounded to the nearest whole number)
Therefore, the closing inventory using the Weighted Average Method is Ksh. 107,968.