Question

A company purchased 500 units for $ 30 each on January 31. It purchased 600 units for $ 36 each on February 28. It sold a total of 650 units for $ 40 each from March 1 through December 31. What is the cost of ending inventory on December 31 if the company uses the firstminus​in, firstminusout ​(FIFO) inventory costing​ method? (Assume that the company uses a perpetual inventory​ system.)

Answer 1

The answer is $16,200

Step-by-step explanation:

First-in, first-out (FIFO) inventory costing method refers to one in which the most recently stocked goods are sold last. To calculate this, let us first lay out the relevant information:

January 31 purchase = 500 units at $30 each

February 28 purchase = 600 units at $36 each

sales = 650 units at $40 each.

required = cost of ending inventory

According to FIFO method, all the goods bought in January, will be sold first before the goods bought in February, hence out of the 650 units sold:

500 units are from January inventory and the remaining 150 units are from February inventory.

Therefore to calculate the cost of ending inventory, which is units of goods remaining from February purchases:

Total initial units in February = 600 units

Units sold from February purchases = 150 units

∴ Units remaining from February purchases = 600 - 150 = 450

remember that for unit cost of goods for February = $36 per unit

∴ Cost of ending inventory = units of ending inventory × unit cost of ending inventory

= 450 × 40 = $16,200