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How do we calculate cost of ending inventory and cost of goods sold using "Moving Average Method" of Inventory Valuation ?

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تاريخ النشر: 2014/09/10
BASKAR SUNDARAM
من قبل BASKAR SUNDARAM , Manager - Accounts & Finance , at the 3 Decades Experienced & the largest Industrial Contracting Company in Middle East.

you re-calculate the average cost of each inventory item in stock after every Transaction (Purchase and issue/sale) i.e., every movement.

SREEDEVI SUNILKUMAR
من قبل SREEDEVI SUNILKUMAR , Business finance officer , Emirates Airline

Under the moving average inventory method, you re-calculate the average cost of each inventory item in stock after every inventory purchase. This method tends to yield inventory valuations and cost of goods sold results that are in-between those derived under the first in, first out (FIFO) method and the last in, first out (LIFO) method. This averaging approach is considered to yield a safe and conservative approach to reporting financial results.

The calculation is the total cost of the items purchased divided by the number of items in stock. The cost of ending inventory and the cost of goods sold are then set at this average cost. No cost layering is needed, as is required for the FIFO and LIFO methods.

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