Question

Date/ Balance or Transaction/ Units/ Unit Cost/ Unit Sales Price

Mar 1/ Inventory/ 3,200/ $64.30/ $86.50
Mar 4/ Purchase/ 3,400/ 64.75/ 87.00
Mar 14/ Sales/ 3,600/ 87.25
Mar 25/ Purchase/ 3,500/ 66.00/ 87.25
Mar 28/ Sales/ 3,450/ 88.00
If Thomas uses a first-in, first-out perpetual inventory system, the total cost of the inventory for carburetor 2642J at March 31 is
a) $196,115
b) $197,488
c) $201,300
d) $263,825

Answer 1

Using the FIFO method, after the sales on Mar 14 and Mar 28, the remaining inventory is 3,050 units from the Mar 25 purchase. Multiplying the remaining units by their unit cost of $66.00, the total cost of inventory for carburetor 2642J at March 31 is $201,300.

Step-by-step explanation:

The student's question requires a calculation of the total cost of inventory for a specific item under a first-in, first-out (FIFO) perpetual inventory system. To solve this, we follow the FIFO method, which considers that the oldest inventory items are sold first.

Detailed Calculation:

1. Sold 3,600 units on Mar 14. Since we start with the oldest inventory, we subtract these from the initial 3,200 units at $64.30 and 400 from the next purchase of 3,400 units at $64.75.
2. Then we sold additional 3,450 units on Mar 28. We have 3,000 units left from the Mar 4 purchase at $64.75 and we subtract the entire amount. The rest, 450 units, are subtracted from the Mar 25 purchase of 3,500 units at $66.00.
3. Now, to determine the value of the remaining inventory, we take the total units left which will be 3,050 from the Mar 25 purchase (3,500 - 450) and multiply by the unit cost $66.00.

The total cost of inventory for carburetor 2642J at March 31 can be calculated as follows:
3,050 units x $66.00/unit = $201,300.
This means the correct answer to the student's question is option (c).