Question

A firm has beginning inventory of 450 units at a cost of $10 each. Production during the period was 500 units at $12 each. If sales were 700 units, what is the cost of goods sold (assume FIFO)?

A. $7,500

B. $8,000

C. $7,900

D. $8,100

Answer 1

The cost of goods sold (COGS) calculated using FIFO with sales of 700 units from beginning inventory and produced units is $7,500, which makes the correct answer A.

Step-by-step explanation:

The question concerns the calculation of the cost of goods sold (COGS) using the First-In, First-Out (FIFO) inventory valuation method. We start with a beginning inventory of 450 units at $10 each, and during the period, 500 units were produced at $12 each. With sales of 700 units, we use the FIFO approach which means the oldest stock is sold first.

To calculate the COGS, we sell the 450 units from the beginning inventory at the cost of $10 each and the remaining 250 units (700 total sold minus the 450 from beginning inventory) from the production lot at $12 each.

COGS calculation:

1. 450 units x $10/unit = $4,500 from the beginning inventory.
2. 250 units x $12/unit = $3,000 from the production.
3. Total COGS = $4,500 + $3,000 = $7,500.

Therefore, the correct answer is A. $7,500.