Question

Assuming that perpetual inventories are not maintained and that a physical count at the end of May 2025 shows 3,000 Boston Teapots on hand, what is the cost of ending inventory under the FIFO method?

(A) $19,500
(B) $22,500
(C) $24,000
(D) $27,000

Answer 1

To calculate the cost of ending inventory under the FIFO method, multiply the total units in inventory by the cost per unit. In this case, the correct answer is (B) $22,500.

Step-by-step explanation:

To calculate the cost of ending inventory under the FIFO method, you need to consider the first-in, first-out principle. According to this principle, the cost of the items that were purchased first will be assigned to ending inventory first. In this case, since perpetual inventories are not maintained, we assume that all the 3,000 Boston Teapots on hand were purchased in May.

Assuming the cost of each Boston Teapot is $7,500, the cost of ending inventory under the FIFO method would be:

Total units in inventory x Cost per unit = Ending inventory cost

3,000 x $7,500 = $22,500

Therefore, the correct answer is (B) $22,500.