Question

Given the following data, calculate the cost of ending inventory using the FIFO costing method:

1/1 Beginning inventory 45 units at $10 per unit
2/25 Purchases 40 units at $12 per unit
6/15 Purchases 30 units at $13 per unit
9/20 Purchases 25 units at $14 per unit
12/31 Ending inventory 40 units
A. $560
B. $480
C. $400
D. $545

Answer 1

To calculate the cost of ending inventory using FIFO, you take the cost of the newest items purchased first. For the 40 units in ending inventory, it's the total of 25 units at $14 each and 15 units at $13 each, which equals $545.

Step-by-step explanation:

The student asked for the calculation of the ending inventory cost using the FIFO costing method. FIFO, or First-In, First-Out, means that the oldest inventory items are recorded as sold first and thus the ending inventory consists of the newest items purchased. Here is how we calculate it:

• The Beginning inventory on 1/1 has 45 units at $10 each.
• On 2/25, 40 units were purchased at $12 each.
• On 6/15, 30 units were purchased at $13 each.
• On 9/20, 25 units were purchased at $14 each.
• The ending inventory on 12/31 has 40 units.

Since there are 40 units in the ending inventory, we take the cost of the newest units according to FIFO:

• The newest 25 units are at $14 each (from 9/20 purchase): 25 units x $14 = $350
• We still need 15 units (40 - 25), which we take from the next newest purchase on 6/15 at $13 each: 15 units x $13 = $195

Adding these together gives us the cost of the ending inventory: $350 + $195 = $545. Therefore, the correct answer is D. $545.