Question

1) What is the formula of COST PER UNIT using weighted average method? 2) What is the formula of COST PER UNIT using FIFO method?

Answer 1

COST PER UNIT USING WEIGHTED AVERAGE METHOD

Let there be two set of purchases at different prices.

1st set :  No.of units (weight1) = W1

             Cost per unit = C1

2nd Set : No.of units (weight2) = W2

                Cost per unit = C2

Weighted Average Cost Formula =[  (W1 × C1) + (W2  + C2) ] / (W1 + W2)

COST PER UNIT USING FIFO :

Let there be two set of purchases :

1st purchase : No.of units = N1

                       Cost per unit = C1

2nd Purchase = No.of units = N2

                         Cost per unit = C2

Let there be sales. Until the first set of purchases extinguishes i.e., till N1 no.of units are sold, cost will be C1. After all the units of 1st set of purchases are sold, Cost becomes C2