What is Average Cost Inventory Valuation?

• A. TOTAL INVENTORY ACQUISITION COST / # of UNITS
• B. FIFO method
• C. LIFO method
• D. Ending inventory value

Answer: (A)

Average cost inventory valuation uses a single cost per unit, found by dividing the total cost of goods available for sale by the total number of units available for sale. That average cost per unit is then used to value ending inventory (and cost of goods sold when units are sold). This method smooths out price fluctuations over time since all units carry the same per-unit cost.

So the description fits best: total inventory acquisition cost divided by the number of units. FIFO and LIFO describe which specific costs are assigned to units sold, not how the per-unit cost is determined. Ending inventory value is the result of applying the average cost per unit to the units remaining.