Vaughn Manufacturing Inventory Calculation

What is the value of Vaughn Manufacturing's inventory at May 31, 2022?

A. $2480

B. $13800

C. $2325

D. $2170

Answer: $2,325

Explanation: For computing the ending inventory, first we have to compute the average cost per unit which is shown below:

Average cost per unit = Total cost ÷ number of units = (Beginning inventory units × price per unit + purchase inventory units × price per unit + purchase inventory units × price per unit ) ÷ (Beginning inventory units + purchase inventory units + purchase inventory units)

= (310 units × $7 + 610 units × $7 + 920 units × $8) ÷ (310 units + 610 units + 920 units)

= ($2,170 + $4,270 + $7,360 ) ÷ (1,840 units)

= ($13,800) ÷ (1,840 units)

= $7.5 per unit

Now the ending inventory units equal to= Number of units for sale - units sold= 1,840 units - 1,530 units= 310 units

So, the ending inventory would equal to= Ending inventory units × average cost per unit= 310 units × $7.5= $2,325

Vaughn Manufacturing's inventory value at May 31, 2022 is $2,325. This calculation was determined using the average cost method. By calculating the average cost per unit and then multiplying it by the ending inventory units, we arrive at the final value. In this case, the average cost per unit was $7.5, and the ending inventory consisted of 310 units.

This calculation is crucial for businesses to keep track of their inventory value accurately. By understanding the value of inventory on hand, companies can make informed decisions regarding production, sales, and financial planning.

It's essential for companies like Vaughn Manufacturing to have a clear picture of their inventory value to ensure smooth operations and profitability in the long run.