Final answer:
The manufacturing company uses the FIFO inventory cost flow method to calculate the cost of goods sold and ending inventory in the production of blue rugs.
Step-by-step explanation:
The subject of your question is Inventory Costing Methods in manufacturing. In this case, the manufacturing company uses the FIFO (First-In, First-Out) inventory cost flow method.
This means that the company assumes that the first skeins of wool and gallons of dye purchased are the first to be used in production and the first to be sold. The cost of these materials is used to determine the cost of goods sold and the value of ending inventory.
To calculate the cost of goods sold, the company will use the cost per skein of wool and the cost per gallon of dye for the first 1,000 rugs produced. For the ending inventory, the company will assume zero target ending inventory and calculate the cost of the remaining skeins of wool and gallons of dye in stock.