Question

Maxell Company uses the FIFO method to assign costs to inventory and cost of goods sold. The company uses a periodic inventory system. Consider the following information:

Date Description # of units Cost per unit
January 1 Beginning inventory 100 5
June 2 Purchase 75 4
November 5 Sales 125

What amounts would be reported as the cost of goods sold and ending inventory balances for the year?

Answer 1

The cost of goods sold for the year is $625, and the ending inventory balance is $200.

Step-by-step explanation:

To calculate the cost of goods sold and ending inventory balances for the year using the FIFO method and periodic inventory system, we need to analyze the inventory transactions.

1. January 1: Beginning inventory - 100 units at $5 per unit
2. June 2: Purchase - 75 units at $4 per unit
3. November 5: Sale - 125 units

Based on this information, we can calculate the cost of goods sold and the ending inventory balances as follows:

• Cost of Goods Sold = (100 units * $5 per unit) + (25 units * $4 per unit) = $625
• Ending Inventory = (50 units * $4 per unit) = $200

Using the FIFO method and the provided information: Begin with the 100 units in opening inventory each costing $5, plus the 75 units purchased at $4 apiece. When Maxell Company sells 125 units, the first 100 units sold will be from the beginning inventory, followed by 25 from the purchase.

The cost of goods sold (COGS) calculation is (100 units × $5/unit) + (25 units × $4/unit) = $500 + $100 = $600. The ending inventory consists of the remaining 50 units from the purchase at $4/unit, resulting in an ending inventory balance of 50 units × $4/unit = $200.

To summarize:

Cost of Goods Sold: $600

Ending Inventory: $200