moving average inventory method Definition | Business Dictionaries from AllBusiness.com
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Business Definition for: moving average inventory method
moving average inventory method

method used under a perpetual inventory system which requires that a new weighted average cost must be calculated aftereachpurchase. The new weighted average is computed in the same way as in the weighted average inventory method : that is, the average cost is the cost of the units available for sale after the purchase divided by the number of units available for sale at that time. This average cost is used to determine the cost of each sale made prior to the next purchase.

For example, assume the following inventory data for Company J:

Inventory, March 1 100 units @ $10 per unit $1000
Purchases, March 10 80 units @ $11 per unit 880
Purchases, March 20 70 units @ $12 per unit 840
Goods available for sale 250 units $2720
Sales, March 18 90 units
Sales, March 27 50 units
140 units
Inventory, March 31 110 units

The moving average costs are computed as follows:

March 1, beginning inventory 100 units @ $10 $1000
March 10, purchases 80 @ $11 880
March 10, balance 180 @ $10.44 $1880
March 18, sales 90 @ $10.44 940
March 18, balance 90 @ $10.44 $ 940
March 20, purchases 70 @ $12 840
March 20, balance 160 @ $11.125 $1780
March 27, sales 50 @ $11.125 556
March 30, balance 110 @ $11.125 $1224
Cost of goods sold (140 units) $940 + $556 $1496
Ending inventory (110 units @ $11.125) $1224
Copyright © 2005, 2000, 1995, 1987 by Barron's Educational Series, Inc., Reprinted by arrangement with Publisher.

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