Question

Auto Dealers Incorporated sells a handmade automobile as its only product. Each automobile is identical; however, they can be distinguished by their unique ID number. At the beginning of 2024, Auto Dealers had three cars in inventory, as follows: Car ID Cost 203 $ 78,000 207 78,000 210 81,000 During 2024, each of the three autos sold for $108,000. Additional purchases (listed in chronological order) and sales for the year were as follows: Car ID Cost Selling Price 211 $ 78,000 $ 108,000 212 78,000 111,000 213 79,500 not sold 214 81,000 114,000 215 84,000 118,500 216 82,500 not sold 217 87,000 123,000 218 84,300 124,500 219 90,000 not sold 2. Calculate ending inventory and cost of goods sold assuming FIFO and a periodic inventory system.

Answer 1

The ending inventory for Auto Dealers Incorporated, using FIFO and a periodic inventory system, is $252,000, which includes the most recently purchased and unsold cars (213, 216, 219). The cost of goods sold for the year comes out to be $729,300, which is the sum of the costs of the sold cars (203, 207, 210, 211, 212, 214, 215, 217, and 218).

Step-by-step explanation:

To calculate the ending inventory and cost of goods sold (COGS) assuming a FIFO (First-In, First-Out) method with a periodic inventory system for Auto Dealers Incorporated, we need to consider the inventory at the beginning of the year, the additional purchases made during the year, and the sales made in chronological order.

The beginning inventory consists of car IDs 203, 207, and 210 with respective costs of $78,000, $78,000, and $81,000.

During 2024, additional purchases were made (car IDs 211 to 219 with respective costs ranging from $78,000 to $90,000).

The cars sold in the year were IDs 203, 207, 210, 211, 212, 214, 215, 217, and 218.

Under FIFO, the first cars purchased (earliest inventory) are the first ones to be sold. Therefore, the ending inventory will include the cars that were most recently purchased and not sold by the end of 2024, which are car IDs 213, 216, and 219.

The ending inventory at the cost will be the sum of the costs of car IDs 213, 216, and 219:

Ending Inventory: $79,500 (213) + $82,500 (216) + $90,000 (219) = $252,000

The COGS is the cost of the sold cars. We add the costs of cars 203, 207, 210, 211, 212, 214, 215, 217, and 218:

COGS: $78,000 + $78,000 + $81,000 + $78,000 + $78,000 + $81,000 + $84,000 + $87,000 + $84,300 = $729,300