In the context of inventory accounting, how is the average cost per unit determined under the periodic inventory system?

• A. By using the cost of the most recent purchases for all units sold.
• B. By averaging the cost of each purchase made throughout the period as inventory is sold.
• C. By dividing the total cost of goods available for sale by the total number of units available for sale during the period.
• D. By assigning the cost of the earliest purchases to all units sold.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the periodic inventory system. Under this system, inventory is updated at the end of the accounting period, and the cost of goods sold (COGS) is calculated based on the inventory available during the period.
2. Step 2: Recognize the concept of average cost per unit. This method is used to allocate the cost of goods available for sale evenly across all units, ensuring a consistent valuation of inventory and COGS.
3. Step 3: Identify the formula for average cost per unit. The formula is: $\frac{\mathrm{Total\; Cost\; of\; Goods\; Available\; for\; Sale}}{\mathrm{Total\; Number\; of\; Units\; Available\; for\; Sale}}$. This divides the total cost by the total units to find the average cost per unit.
4. Step 4: Apply the formula. To determine the average cost per unit, sum up the total cost of all inventory purchases made during the period (including beginning inventory, if applicable) and divide it by the total number of units available for sale during the same period.
5. Step 5: Use the average cost per unit to calculate the cost of goods sold (COGS) and ending inventory. Multiply the average cost per unit by the number of units sold to find COGS, and multiply the average cost per unit by the number of units remaining to find the ending inventory value.