Why does the weighted average cost per unit differ between periodic and perpetual inventory systems?

Under the weighted average cost method, the average cost per unit depends on when you calculate it. In a periodic system, you compute one average at the end of the period using all purchases. In a perpetual system, you recalculate the average after every purchase, and each sale uses the average at that moment.

Periodic Weighted Average

You wait until period-end, pool all units available (beginning inventory + all purchases), and divide total cost by total units. This single average is applied to all units sold and units remaining.

Perpetual Moving Average

After each purchase, you recalculate the average cost of units on hand. When a sale occurs, COGS is based on the current moving average.

Example: Trident Supplies has the following transactions in March:

Periodic Method:

Total units available = 200 + 300 + 150 = 650

Total cost = $8,000 + $13,200 + $7,200 = $28,400

Average cost = $28,400 / 650 = $43.69 per unit

COGS for 250 units = 250 x $43.69 = $10,923

Perpetual Method:

After Mar 10 purchase: (200 x $40 + 300 x $44) / 500 = $21,200 / 500 = $42.40

Mar 18 sale of 250 units: COGS = 250 x $42.40 = $10,600

Remaining: 250 units at $42.40 = $10,600

After Mar 25 purchase: ($10,600 + 150 x $48) / 400 = $17,800 / 400 = $44.50

Why the Difference?

Periodic includes the Mar 25 purchase ($48/unit) in the average that applies to the Mar 18 sale, even though that purchase had not yet occurred. Perpetual only uses costs available at the time of each sale.

COGS Difference: $10,923 - $10,600 = $323

In a rising-cost environment, periodic weighted average typically produces higher COGS than perpetual because the later, higher-cost purchases are averaged into sales that occurred earlier.

Exam Tip: If a question specifies "periodic" or "perpetual," the calculation method changes. Always check which system applies before computing.

Practice more inventory cost flow problems in our CFA Level I question bank.