Question

The following lots of Commodity Z were available for sale during the year. Line Item Description Units and Cost Beginning inventory 7 units at $49 First purchase 18 units at $54 Second purchase 27 units at $57 Third purchase 13 units at $57 The firm uses the periodic inventory system, and there are 23 units of the commodity on hand at the end of the year. What is the ending inventory balance of Commodity Z using FIFO?

a.$1,311
b.$3,572
c.$3,595
d.$1,127

Answer 1

The ending inventory balance of Commodity Z using FIFO is (c) $3,595.

Step-by-step explanation:

FIFO, or First-In-First-Out, assumes that the first items added to inventory are the first ones sold. In this case, the ending inventory comprises 7 units from the beginning inventory, 18 units from the first purchase, and 23 units from the second purchase, totaling 48 units. Calculating the ending inventory cost by multiplying the units by their respective costs and summing them up results in $3,595.

FIFO ensures that the costs associated with older inventory are matched with revenue first, providing a more accurate representation of current inventory costs.

Option C is correct.