Question

Suppose PepsiCo has 3,000 cases of Pepsi in one of their warehouses at the beginning of the month of June. Half of these cases were held over from the prior month (May) at a cost of $5 per case, and half were from 2 months ago (April) with a cost of $4 per case. In the month of June, they received another 2,000 cases at a cost of $5.50 per case. The warehouse sold and shipped 2,000 cases in the month of June. PepsiCo uses FIFO to value their inventory. What would be the remaining balance of PepsiCo in the inventory account of this warehouse at the end of June?

a) $13,500

b) $15,750

c) $16,000

d) $16,500

Answer 1

Using FIFO, the ending inventory for PepsiCo would include the remaining cases from May at $5 each and all cases from June at $5.50 each. After calculating, the ending inventory balance is $16,000 (option c).

Step-by-step explanation:

To calculate the remaining balance in PepsiCo's inventory account at the end of June using the FIFO (First-In, First-Out) method, we should first account for the sales made during the month.


PepsiCo sold 2,000 cases in June, which means they would first sell the older inventory from April at $4 per case and then the remaining from May at $5 per case.

At the beginning of June, the inventory consisted of:

• 1,500 cases from May at $5 per case,
  
  
• 1,500 cases from April at $4 per case.
  
  

After the 2,000 cases were sold, all 1,500 cases from April and 500 from May would have been sold, leaving 1,000 cases from May at $5 per case and all 2,000 cases from June at $5.50 per case in the ending inventory.

The calculation for the ending inventory value is then:

• 1,000 cases from May at $5 per case = $5,000
  
  
• 2,000 cases from June at $5.50 per case = $11,000
  
  

Adding these together, the remaining inventory balance is:

$5,000 (May inventory) + $11,000 (June inventory) = $16,000

Therefore, the correct answer is $16,000, which corresponds to option c).