Graham Company uses a periodic inventory system. Details for the inventory account for the month of January, 2014 are as follows: An end of the month (1/31/14) inventory showed that 120 units were on hand. If the company uses FIFO, what is the value of the ending inventory?
A) $520
B) $600
C) $656
D) $1,424

Question

Graham Company uses a periodic inventory system. Details for the inventory account for the month of January, 2014 are as follows:  An end of the month (1/31/14) inventory showed that 120 units were on hand. If the company uses FIFO, what is the value of the ending inventory?
A) $520 
B) $600 
C) $656 
D) $1,424

Quizplus · Accepted Answer

To calculate the ending inventory using FIFO, we have to assume that the units sold were the oldest units in stock, and the units left are the newest purchases.

Here are the units sold and remaining for the month of January:

- Jan 5: Sold 30 units from beginning inventory (BI) 
- Jan 15: Purchased 100 units 
- Jan 20: Sold 90 units 
- Jan 30: Purchased 120 units

So, the ending inventory value can be calculated as:

- BI (30 units at $2.50) = $75 
- Purchase 1 (100 units at $2.80) = $280 
- Purchase 2 (120 units at $2.90) = $348 
- COGS (30 units at $2.50) + (90 units at $2.80) = $285

To calculate the ending inventory, we need to add up the cost of the units remaining (120 units) from the most recent purchase until we reach the total of our ending inventory count (120 units).

Units remaining from Purchase 2: 120 
Cost per unit from Purchase 2: $2.90

Total cost of ending inventory: 120 * $2.90 = $348

Therefore, the value of the ending inventory is $656 (Option C).

Graham Company Uses a Periodic Inventory System