Certified Materials and Resource Professional Practice

The weighted average cost flow method calculates the cost of inventory based on an average that reflects the cost of goods available for sale during a specific period. The correct answer is derived from the formula used in this method, which involves taking the sum of the product of each unit’s cost and the quantity sold and then dividing that total by the total number of units. This approach helps in smoothing out price fluctuations over time and gives a more accurate representation of inventory valuation compared to methods that might focus on the costs associated with individual units or batches.

In practice, this means that when new inventory is acquired at different costs, instead of tracking individual items, all items in inventory are treated as being of the same average cost. Thus, the cost of ending inventory and cost of goods sold reflects an overall average, ensuring that both are calculated consistently and without bias from any particular pricing trends. This method is particularly useful in industries where inventory items are indistinguishable or where inventory is constantly mixed, leading to variances in costs.

The other options do not accurately reflect the principles of the weighted average cost flow method, focusing on aspects like lowest prices, total cost ratios, or simplistic averages without considering the quantity of each cost.