**Weighted Average Method**

Under the weighted average cost formula, the cost of each item is determined from the ** weighted average **of the cost of

*similar items*at the beginning of a period and the cost of similar items produced or purchased during the period. The average may be

*Weighted Average - Periodic or Weighted Average - Perpetual*.

**Weighted Average - Periodic**

Under weighted average-periodic, the weighted average cost is determined at the ** end **of the period using the following formula:

Total Goods Available for sale= Beginning Inventory + Net Purchases

The ** weighted average unit cost **is then multiplied by the quantity sold during the period to determine the cost of goods sold or by the quantity of inventory on hand to determine ending inventory.

**Weighted Average - Perpetual**

When used in conjunction with the perpetual system, the weighted average method is popularly known as the *moving average method. *

This is in accordance with **PAS 2, PARAGRAPH 27, **which provides that the *weighted average may be calculated on a periodic basis or as each additional shipment is received depending upon the circumstances of the entity.*

Under this method, a new weighted average unit cost must be ** computed after every purchase and purchase return. **Thus, the total cost of goods available after purchase and purchase return is divided by the total units available for sale at this time to get a new weighted average unit cost. Such new weighted average unit cost is then multiplied by the units on hand to get the inventory cost.

**SOLUTION: Weighted Average - Perpetual**

Observe that a ** new average unit cost** is computed by dividing

*total goods available for sale in units*The computed moving average unit costs are used in computing for cost of goods sold.

**after every purchase.**Note that under the weighted average perpetual, ** sales returns **are reverted back to inventory

**computed**

*at the average unit cost**before*the related sale.

**Cost of Goods Sold **is derived from the table as follows:

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