Question

The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1. Date Product Z Units Cost May 3 Purchase 5 $30 May 10 Sale 3 May 17 Purchase 10 $34 May 20 Sale 6 May 23 Sale 3 May 30 Purchase 10 $40 Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for the sale of May 20 using the FIFO inventory cost method. a. $250 b. $180 c. $196 d. $204

Answer 1

Solution

Correct option is c: $196

Explanation:

In FIFO we use first in first out, means which good are purchased first, they will be sale first.

Cost of merchandise sold(6 units):

=[(5-3)units×$30]+[(10-6)units ×$34]

=(2 units ×$30) +(4 units×$34)

=$196

From May 3 purchase, Only 2 units are left in stock after May 10 sale so these 2 units cost is (2×$30=$60)

Rest of 4 units are sold from May 17 purchase. So cost of these 4 units is (4×$34=$136)

So total cost of 6 units which are sold on May 20 is ($60+$136=$196) under FIFO