Which inventory valuation method uses a constant average cost per unit for both COGS and ending inventory?

Which inventory valuation method uses a constant average cost per unit for both COGS and ending inventory?

• A. Last in, first out (LIFO)
• B. First-in, first-out (FIFO)
• C. Average cost method (AVCO)
• D. Specific identification

Answer: (C)

The average cost method (AVCO) uses a single, constant cost per unit for both COGS and ending inventory. This per-unit cost is the weighted average of all costs available for sale during the period—calculated by dividing the total cost of goods available for sale by the total units available for sale. Because every unit is valued at that same average cost, both the cost of goods sold and the ending inventory reflect the same per-unit amount. For example, if you have 100 units at $5 and 100 units at $7, the average cost per unit is $6. If you sell 150 units, COGS = 150 × $6 = $900, and ending inventory = 50 units × $6 = $300. Other methods assign costs based on the order or specific items (LIFO uses the latest costs for COGS; FIFO uses the oldest costs for COGS; specific identification uses exact costs for each item), but AVCO always uses that single average per-unit cost.

The average cost method (AVCO) uses a single, constant cost per unit for both COGS and ending inventory. This per-unit cost is the weighted average of all costs available for sale during the period—calculated by dividing the total cost of goods available for sale by the total units available for sale. Because every unit is valued at that same average cost, both the cost of goods sold and the ending inventory reflect the same per-unit amount.

For example, if you have 100 units at $5 and 100 units at $7, the average cost per unit is $6. If you sell 150 units, COGS = 150 × $6 = $900, and ending inventory = 50 units × $6 = $300. Other methods assign costs based on the order or specific items (LIFO uses the latest costs for COGS; FIFO uses the oldest costs for COGS; specific identification uses exact costs for each item), but AVCO always uses that single average per-unit cost.