 Average cost inventory valuation results in ending inventory and cost of goods sold valuations in between those reported by FIFO and LIFO valuation methods. Recall under the periodic inventory tracking system, we don't track the purchases and sales of inventory through the inventory account, so the revenue entry is all that is recorded when a sale occurs. Therefore, costs of goods sold in ending inventory valuation are determined only at the end of the month. Let's look at an example. Let's assume the following inventory data. March 1st, beginning inventory is 200 units at a cost of $10 each. March 4th, we purchased an additional 300 units at $20 each. March 10th, we sold 400 units at a price of $50 each, so that's the retail price, not the cost. March 20th, we purchased an additional 500 units at $30 each. March 25th, we sold 300 units at a price of $50 each, and finally March 30th, we purchased 100 units at $40 each. If you want to pause the video at this moment and write that stuff down, you can, and then just start it up when you're ready. Okay, with this data and using average cost, let's determine the value of ending inventory and the amount of cost of goods sold that should be recorded. Since inventory isn't accounted for after each transaction, we need to use the cost of goods sold model to determine the value of cost of goods sold and ending inventory. The cost of goods sold model is beginning inventory plus purchases equals the goods available for sale. From that, we can subtract ending inventory to arrive at cost of goods sold. We could also subtract the units sold to arrive at ending inventory. This is important to note, because sometimes the units sold are given and not the ending units, while other times the ending units are given and not the units sold. In real life, though, we know the ending units of inventory because we physically counted them. So we take the data from this problem and put it into the cost of goods sold model. I chose to solve for ending inventory because we were given the units sold. So we have 1,100 units available for sale with a cost of $27,000. We know we sold 700 units, so our ending inventory must be 400 units. So let's figure out the average cost of the 700 units we sold and the 400 units in ending inventory using the weighted average cost method. With this method, we take the cost of goods available for sale and divide it by the number of goods available for sale. This gives us a weighted average cost per unit. In this case, we take $27,000 and divide it by 1,100 units, and we come up with an average cost of 24.54545. It's common when using average cost to carry the decimal of the cost per unit out to four or five decimal places. Then we multiply the units sold by the average cost to arrive at costs of goods sold of $17,182. The difference between the costs of goods sold and the goods available for sale is the value of the ending inventory, which is $9,818. We can also prove the ending inventory amount by multiplying the 400 units of ending inventory by the average cost.