Question

Which of the following represents the cost assigned to ending inventory and cost of goods sold using the FIFO method in a periodic inventory system for Sydney Corporation in April 2023?

A. Cost of goods sold: $33,840; Ending inventory: $15,600
B. Cost of goods sold: $32,760; Ending inventory: $16,680
C. Cost of goods sold: $33,840; Ending inventory: $16,680
D. Cost of goods sold: $32,760; Ending inventory: $15,600

Answer 1

The FIFO method means that the earliest goods purchased are sold first, and costs are divided between cost of goods sold and ending inventory based on this principle.

Step-by-step explanation:

The FIFO (First-In, First-Out) inventory method assumes that the earliest items purchased are the first to be sold, and therefore, the cost of the oldest inventory is assigned to cost of goods sold, while the cost associated with the most recently purchased items remains in ending inventory. This can be particularly important for companies like Sydney Corporation when preparing their financial statements.

If more realistic prices and an extended range of products are involved, as depicted in the examples provided, the calculation would yield numbers such as $17,147.51 or $27,654.92, which can look a bit messy but represent the complexities of real-world business transactions. The costs for ending inventory and cost of goods sold using the FIFO method would vary depending on the timing and price of purchases throughout April 2023.