Question

The data below are for Parrett Pasta: Beginning inventory 200 units at $2.00 Purchase–August 500 units at $1.50 Purchase–October 200 units at $3.00 A periodic inventory system is used; ending inventory is 440 units. What is the ending inventory under FIFO?

Answer 1

To calculate Parrett Pasta's ending inventory under FIFO, subtract the beginning inventory from the ending inventory and then apply the purchase prices starting with the oldest. In this case, all of the 240 remaining units come from the August purchase at $1.50 each, totaling $360 for the ending inventory.

Step-by-step explanation:

The question is asking to calculate the ending inventory value for Parrett Pasta using the FIFO (First-In, First-Out) inventory valuation method. Under FIFO, the oldest inventory costs are assigned to the cost of goods sold first, and the most recent costs are assigned to ending inventory. Since Parrett Pasta's ending inventory is 440 units, we would start deducting units from the beginning inventory and then from the purchases to determine which costs will be allocated to the ending inventory.

Here's a step-by-step calculation:

1. Start with the beginning inventory: 200 units at $2.00.
2. Subtract the beginning inventory from the ending inventory count: 440 units - 200 units = 240 units remaining.
3. Next, consider the August purchase of 500 units at $1.50 since these are the next units purchased after the beginning inventory. Since only 240 units remain, all of these will come from the August purchase.
4. The value of the ending inventory is therefore 240 units × $1.50 = $360.

The ending inventory under FIFO for Parrett Pasta would be $360.