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A Level Accounting (9706)•9706/12/M/J/18
Question 24 from 9706/12/M/J/18

Explanation

AVCO Inventory Valuation Steps:

  • Initial inventory: 100 units × 24=24 = 24=2,400 total value.
  • Add purchase: 40 units × 25=25 = 25=1,000; new total 140 units at $3,400.
  • Calculate average cost: 3,400÷140=3,400 ÷ 140 = 3,400÷140=24.2857 per unit.
  • Value sold: 80 units × 24.2857≈24.2857 ≈ 24.2857≈194.

Why A is correct:

  • AVCO assigns cost of goods sold based on weighted average unit cost after all purchases up to the sale date.

Why the others are wrong:

  • B. 196:Resultsfromroundingaverageto196: Results from rounding average to 196:Resultsfromroundingaverageto24.50 before multiplying.
  • C. 200:Assumesaveragecostof200: Assumes average cost of 200:Assumesaveragecostof25, ignoring initial inventory.
  • D. 224:UsesFIFOmethod,taking40unitsat224: Uses FIFO method, taking 40 units at 224:UsesFIFOmethod,taking40unitsat25 + 40 at $24.

Final answer: A

Topic: Preparation of financial statements

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