Question

A business purchases two units at $50 each and later purchases three more at $60 each. shortly after, one is sold.what is the cost of the inventory remaining under theFIFO method?A. $220B. $234C. $230D. $224

Answer 1

Under the FIFO method, after selling one unit, the remaining inventory cost for the business would be $230, which includes one unit at $50 and three units at $60 each.

Step-by-step explanation:

The question involves calculating the cost of the inventory remaining using the FIFO (First In, First Out) method. The business purchased two units at $50 each and then three units at $60 each. Under FIFO, the oldest costs (the first costs incurred) are the first to be removed from the inventory when a sale is made. Therefore, when one unit is sold, it would be one of the $50 units.

Here's the breakdown of the remaining inventory after selling one unit:

1 unit remaining from the first purchase at $50

3 units from the second purchase at $60 each ($60 x 3 = $180)

Adding the cost of the remaining units gives us $50 (from the first purchase) + $180 (from the second purchase) = $230.

Thus, the correct answer is C. $230.

Answer 2

First In, First Out (FIFO) is an accounting method in which assets purchased or acquired first are disposed of first. It assumes that the remaining inventory consists of items purchased last.

From the question, there are a total of 5 items in the inventory. The first purchase price for 2 items was $50, while the other 3 were purchased at $60 per item.

If one item is sold, under the FIFO method, it was sold for $50. Therefore, the remaining items in the inventory are 1 $50 item and 3 $60 items.

Therefore, the cost will be:

`\Rightarrow50+3(60)=50+180=\$230`

OPTION C is the correct option.