During January, Metro Co., which maintains a perpetual inventory system, recorded the
following information pertaining to its inventory:

........................................Unit ...Total....Units On

.............................Units....Cost....Cost.....Hand

Balance on 1/1. ......1,000... $1... $1,000 ..1,000

Purchased on 1/7. ...600 .......3 ....1,800.. .1,600

Sold on 1/20 ...........900 .........................700

Purchased on 1/25....400...... 5.... 2,000.. 1,100

Under the moving-average method, what amount should Metro report as inventory at
January 31?

Answer (B) is correct.
The moving-average system is only applicable to perpetual inventories. It
requires that a new weighted average be computed after every purchase.
This moving average is based on remaining inventory held and the new
inventory purchased. Based on the calculations below, the movingaverage
cost per unit for the 1/20 sale is $1.75, and the cost of goods sold
(COGS) for January is $1,575 (900 units sold × $1.75). Thus, ending
inventory is $3,225 ($1,000 beginning balance + $1,800 purchase on 1/7
– $1,575 COGS on 1/20 + $2,000 purchase on 1/25).
Moving-Average

......................Units.. Cost/Unit... Total Cost

Balance 1/1...... 1,000... $1.00....... $1,000

Purchase 1/7 .....600...... 3.00 ........1,800

......................1,600 ....$1.75...... $2,800