Which valuation method calculates item cost by dividing the total inventory on-hand by the quantity in stock?

Question

Options

• AFIFO
• BSerial/Batch valuation
• CStandard cost valuation
• DMoving average

• A
  11% (4)
• B
  6% (2)
• C
  3% (1)
• D
  81% (29)

Explanation

Moving average (D) works by continuously recalculating item cost as new stock arrives: it divides the total inventory value by the total quantity on hand, so the unit cost "moves" with each new purchase - exactly what the question describes.

Why the others are wrong:

• FIFO (A) assumes the oldest stock is sold first, so cost layers are consumed in sequence rather than averaged together.
• Serial/Batch valuation (B) tracks cost at the individual serial number or batch level, not as a pooled average across all stock.
• Standard cost (C) uses a predetermined fixed cost set in advance, ignoring actual purchase prices entirely.

Memory tip: Think of "moving average" like a rolling GPA - every new grade (purchase) shifts the overall average up or down, just as every new receipt shifts the average unit cost.

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