Question

A company purchased 90 units for $20 each on January 31. It purchased 180 units for $25 each on

February 28. It sold 180 units for $60 each from March 1 through December 31. If the company uses the

first-in, first-out

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

Under FIFO method of valuation of Inventory, Inventory purchase first is issued first and the closing stock is valued from latest Inventory

Total value of opening Inventory and purchases

= 90 x $20 + 180 x $25

= $6,300

Quantity of closing Inventory

= Opening Inventory + Purchases – Quantity sold

= 90 + 180 – 180

= 90 units

So, value of closing Inventory will be from latest purchase of 180 units @ $25

= 90 x $25

= $2,250

Cost of goods sold

= Total value of opening Inventory and purchases – Value of closing Inventory

= $6,300 - $2,250

= $4,050