How is the ending inventory calculated under the Average Cost method?

The ending inventory under the Average Cost method is calculated by taking the Cost of Goods Available for Sale and subtracting the Cost of Goods Sold (COGS). This method allocates the average cost of inventory to the items sold and those remaining at the end of the period.

To clarify the components involved:

1. Cost of Goods Available for Sale represents the total cost of all inventory that was available to be sold during the accounting period. This includes the beginning inventory plus any additional purchases made throughout the period.

2. Cost of Goods Sold (COGS) reflects the cost associated with the inventory that has been sold during the period.

By using the formula of subtracting COGS from Cost of Goods Available for Sale, you arrive at the ending inventory, which represents the value of the inventory that remains unsold at the end of the accounting period.

This approach is particularly effective in fluctuating price environments where it is important to understand the average cost of inventory held. It provides a straightforward calculation that reflects the costs associated with inventory management over the period. This is why option A accurately represents the method used under the Average Cost principle.