Question

A company purchased 120 units for $ 20 each on January 31. It purchased 170 units for $ 30 each on February 28. It sold 170 units for $ 60 each from March 1 through December 31. If the company uses the firstminus​in, firstminusout inventory costing​ method, what is the amount of Cost of Goods Sold on the income statement for the year ending December​ 31? (Assume that the company uses a perpetual inventory​ system.)

Answer 1

To compute the Cost of Goods Sold using the FIFO method, the 170 units sold will come from the earliest purchases: 120 units from the January purchase at $20 each and 50 units from the February purchase at $30 each, totaling $3,900.

Step-by-step explanation:

To calculate the Cost of Goods Sold (COGS) using the First-In, First-Out (FIFO) inventory costing method, we need to track the inventory that was sold based on the oldest prices first. Since the company uses a perpetual inventory system, this calculation occurs with every sale.

The company purchased 120 units at $20 each in January and 170 units at $30 each in February. When it sells 170 units, the first 120 units sold will be accounted at the January purchase price, and the next 50 units will be accounted at the February purchase price:

1. 120 units x $20/unit = $2,400 from January's inventory
2. 50 units x $30/unit = $1,500 from February's inventory

Therefore, the total COGS for selling 170 units is $2,400 + $1,500 = $3,900.

Answer 2

$2,730

Step-by-step explanation:

The computation of the Cost of Goods Sold is shown below:-

Cost of goods sold = Purchase × Each Unit + (Sold units - Each unit) × Purchase units

= 120 units × $20 + 110 units × $30

= $2,400 + $330

= $2,730

Therefore we have calculated the cost of goods sold from First in the first-out method by applying the above formula.