Question

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

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.)

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

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