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Hyper Retailers had an inventory of 10 000 units of Product B on 01 January 2022. A further 200 000 units

were expected to be purchased during 2022. The cost price of Product B is estimated to be R11 per unit during
2022 and is 10% more than the cost per unit of the opening inventory. An inventory of 25 000 units is expected
on 31 December 2022. The FIFO method is used to value inventories

Use the information given below to calculate the cost of sales for 2022.

User Ben Nyberg
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1 Answer

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To calculate the cost of sales for 2022 using the FIFO method, we need to determine the cost of the units sold throughout the year.

1. Opening inventory on 01 January 2022:

Units: 10,000

Cost per unit: R11

Total cost of opening inventory: 10,000 units * R11 per unit = R110,000

2. Purchases during 2022:

Units purchased: 200,000

Cost per unit: R11 (10% more than the cost per unit of the opening inventory)

Total cost of purchases: 200,000 units * R11 per unit = R2,200,000

3. Ending inventory on 31 December 2022:

Units: 25,000

Cost per unit: To be determined

To calculate the cost of sales, we need to determine the number of units sold during the year. This can be calculated by subtracting the ending inventory from the sum of the opening inventory and purchases:

Units sold = Opening inventory + Purchases - Ending inventory

Units sold = 10,000 + 200,000 - 25,000 = 185,000

Now, let's calculate the cost of sales using the FIFO method:

Cost of sales = Units sold * Cost per unit

Cost of sales = 185,000 units * Cost per unit

To determine the cost per unit, we know that the cost price of Product B is estimated to be 10% more than the cost per unit of the opening inventory. Therefore, the cost per unit of the opening inventory can be calculated as:

Cost per unit of opening inventory = R11 / (1 + 10%) = R11 / 1.10 = R10

Substituting this value into the cost of sales equation:

Cost of sales = 185,000 units * R10 per unit = R1,850,000

Therefore, the cost of sales for 2022 using the FIFO method is R1,850,000.

User Pdizz
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