Question

M7-20 to 22 (Supplement 7A) Calculating Cost of Goods Sold and Ending Inventory under Perpetual FIFO, LIFO, and Weighted Average Cost [LO 7-S1]

In its first month of operations, Literacy for the Illiterate opened a new bookstore and bought merchandise in the following order:

(1) 350 units at $4 on January 1,
(2) 650 units at $6 on January 8, and
(3) 760 units at $7 on January 29.

Assuming 1,060 units are on hand at the end of the month.

Calculate the cost of goods available for sale, cost of goods sold, and ending inventory under the FIFO. Assume perpetual inventory system and sold 700 units between January 9 and January 28. (Round your intermediate calculations to 2 decimal places.)

Answer 1

The cost of goods available for sale is $10620. Under the FIFO method, the cost of goods sold is $3500, and the ending inventory is $7120 for the bookstore's first month.

Step-by-step explanation:

Calculating FIFO Perpetual Costing

First, calculate the cost of goods available for sale by adding up the costs of all purchases. Here's the breakdown:

• (350 units x $4) + (650 units x $6) + (760 units x $7)
• (1400) + (3900) + (5320)
• $10620 total cost of goods available for sale

Next, for the cost of goods sold (COGS) under the FIFO method, we take the oldest costs first. Since 700 units were sold, we fully deplete the first purchase and take some from the second:

• (350 units x $4) + (350 units x $6)
• (1400) + (2100)
• $3500 total COGS

Finally, to determine the ending inventory, we subtract the sold units from the total units purchased, starting with the oldest inventory and working towards the newest. Because we sold 700 units, we have 1060 units left, which come from the remaining 300 units purchased at $6 and all 760 units purchased at $7:

• (300 units x $6) + (760 units x $7)
• (1800) + (5320)
• $7120 total ending inventory

Therefore, under the FIFO perpetual inventory method, the cost of goods available for sale is $10620, the COGS is $3500, and the ending inventory is $7120.