Final answer:
The COGS calculated using the FIFO method is $7,490, after determining the value of the ending inventory to be $3,975. This is accomplished by listing the inventory and purchase transactions, accounting for the units sold, and then subtracting the ending inventory value from the cost of the available goods.
Step-by-step explanation:
To calculate the Cost of Goods Sold (COGS) using the First-In, First-Out (FIFO) method, we have to compile the purchases and sales in the order they occurred, and then calculate the cost of the ending inventory to determine the COGS. For example, if we assume that 365 units were sold during the year, we'll account for them in the order they were purchased or produced.
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- Beginning inventory: 110 units at $30 each = $3,300
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- Feb 25 purchase: 100 units at $32 each = $3,200
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- June 15 purchase: 80 units at $33 each = $2,640
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- Sept 20 purchase: 75 units at $31 each = $2,325
The total units available for sale would be the sum of beginning inventory and purchases, which is 110 + 100 + 80 + 75 = 365 units. Since the ending inventory consists of 125 units, and we are using the FIFO method, we would take the 125 newest units as our ending inventory, which would be the entire Sept 20 purchase (75 units at $31 each) and 50 units from the June 15 purchase at $33 each.
Ending inventory calculation:
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- 75 units (from Sept 20 purchase) at $31 each = $2,325
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- 50 units (from June 15 purchase) at $33 each = $1,650
The value of the ending inventory is $2,325 + $1,650 = $3,975.
The COGS is then calculated by subtracting the ending inventory from the cost of the available goods:
COGS = Cost of Available Goods - Ending Inventory
COGS = ($3,300 + $3,200 + $2,640 + $2,325) - $3,975
= $11,465 - $3,975
= $7,490
Therefore, the COGS using the FIFO costing method is $7,490, which is option c in the question provided.