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)?

Answer 1

The cost of goods sold using the FIFO method for the firm that sold 700 units is $7,500, calculated by totaling the cost of the first 450 units at $10 each from the beginning inventory and 250 units at $12 each from the production inventory.

Step-by-step explanation:

When calculating the cost of goods sold (COGS) using the First-In, First-Out (FIFO) inventory method, we consider the oldest inventory costs first. In this example, the firm has a beginning inventory of 450 units at $10 each, and additional production during the period added 500 units at $12 each.

If the firm sold 700 units, we need to calculate the total cost of these units. The first 450 units would come from the beginning inventory, and the next 250 units from the produced inventory:

• 450 units x $10 = $4,500 (beginning inventory)
• 250 units x $12 = $3,000 (produced inventory)

By adding these two amounts together, we get:

$4,500 + $3,000 = $7,500 as the cost of goods sold under the FIFO method.