Question

A business has two units on hand worth $200 each and purchases four units at $250 each. Under the first in, first out (FIFO ) method, what is the value of the inventory on hand?

Answer 1

Using the FIFO method, the value of the inventory on hand for the business is calculated by adding the cost of the initial two units ($400) to the cost of the four additional units ($1000), resulting in a total inventory value of $1400.

Step-by-step explanation:

When applying the first in, first out (FIFO) method to calculate the value of inventory, we consider the cost of goods in the order they were acquired. In this scenario, the business starts with two units valued at $200 each and then purchases an additional four units at $250 each.

If we are to determine the value of inventory on hand without selling any units, we would sum the total cost of all six units. This is the cost of the two initial units plus the cost of the four additional units at their respective purchase prices.

The calculation would be as follows: (2 units × $200) + (4 units × $250) = $400 + $1000 = $1400. Thus, the value of the inventory on hand, according to the FIFO method, is $1400.