Periodic Weighted Average Method Quiz and Flashcards

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Questions and Answers

Which method calculates a weighted average price for all units in inventory?

LIFO method

FIFO method

Cumulative weighted average pricing method (correct)

Specific identification method

What happens to closing inventories when the issue price approximates current market value?

They match market value precisely

They become undervalued (correct)

They become overvalued

They are not affected

How is the average price calculated in the cumulative weighted average pricing method?

By taking the highest unit cost in the inventory

By dividing the total cost by the total number of units issued (correct)

By multiplying the total cost by the total number of units

By averaging the last three unit costs in the inventory

When is a new weighted average price calculated in the cumulative weighted average pricing method?

Whenever a new delivery of materials is received Signup and view all the answers

What is the main difference between the periodic weighted average pricing method and the cumulative weighted average pricing method?

The periodic method calculates a new inventory value at the end of a period, while the cumulative method calculates it whenever new inventory is purchased. Signup and view all the answers

Under the standard costing method, how are all issues priced?

At a predetermined standard price Signup and view all the answers

What assumption does the FIFO method make when materials are issued out of inventory?

Based on the earliest delivered materials Signup and view all the answers

What is a key feature of the cumulative weighted average pricing method?

It calculates a new weighted average price with every sale Signup and view all the answers

In FIFO, how are issues priced?

Based on the cost of the earliest delivery remaining in inventory Signup and view all the answers

What does LIFO stand for in inventory management?

Last In First Out Signup and view all the answers

When using LIFO, which units are assumed to be sold or used first?

Units added to inventory most recently Signup and view all the answers

What does the cost of materials issued plus the value of closing inventory equal to?

Cost of purchases plus value of opening inventory Signup and view all the answers

In a period of inflation, using the cumulative weighted average pricing system, what tends to happen to the value of material issues?

Rise gradually Signup and view all the answers

How are closing inventory values determined under the periodic weighted average pricing method?

Balancing figure Signup and view all the answers

Study Notes

Inventory Costing Methods

Materials are issued at a price that approximates current market value, which may lead to undervaluation of closing inventories.

Cumulative Weighted Average Pricing

Calculates a weighted average price for all units in inventory, which is used to price issues and value remaining inventory.
A new weighted average price is calculated whenever new materials are received.
Example: Issue costs and closing inventory values are calculated based on the weighted average price.

Periodic Weighted Average Pricing

Calculates a retrospective average price for all materials issued during a period.
Averages the cost of all receipts and opening inventory to determine the issue price.
Closing inventory values are calculated as a balancing figure.

Standard Costing

Issues are priced at a predetermined standard price.
Standard costing is a method that will be studied in more detail in the FMA Management Accounting exam.

FIFO, LIFO, and Weighted Average Pricing Methods

FIFO (First-In-First-Out) assumes that materials are issued in the order they were received, with the earliest delivery priced out first.
Examples of issue costs and closing inventory values using FIFO, LIFO, and weighted average pricing methods are provided.
The advantages and disadvantages of each method are discussed, and it is noted that there is no one correct method, as each has its own advantages and disadvantages.

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Description

Learn about the periodic weighted average pricing method for inventory valuation, which involves calculating a new inventory value at the end of a given period. Understand the differences between the periodic and cumulative weighted average pricing methods and when to apply them.

Periodic Weighted Average Pricing Method