Under the periodic inventory system, how is the weighted average cost per unit calculated to determine the cost assigned to ending inventory and cost of goods sold?

• A. By dividing the total cost of goods available for sale by the total number of units available for sale during the period.
• B. By assigning the specific cost of each item to ending inventory and cost of goods sold.
• C. By averaging the cost of inventory on hand after each purchase throughout the period.
• D. By using the cost of the most recent purchases for ending inventory and the oldest costs for cost of goods sold.

Answer: (A)

Verified step by step guidance

1. Understand the periodic inventory system: In this system, inventory updates are made at the end of the accounting period rather than continuously. This means that the weighted average cost per unit is calculated based on all purchases and inventory available during the period.
2. Identify the formula for weighted average cost per unit: The weighted average cost per unit is calculated as \( \text{Weighted Average Cost per Unit} = \frac{\text{Total Cost of Goods Available for Sale}}{\text{Total Number of Units Available for Sale}} \).
3. Determine the 'Total Cost of Goods Available for Sale': This includes the cost of beginning inventory plus the cost of all purchases made during the period.
4. Determine the 'Total Number of Units Available for Sale': This includes the number of units in beginning inventory plus the number of units purchased during the period.
5. Divide the 'Total Cost of Goods Available for Sale' by the 'Total Number of Units Available for Sale' to calculate the weighted average cost per unit. This value is then used to assign costs to ending inventory and cost of goods sold.