Netta Shutters has the following inventory information. A physical count of merchandise inventory on November 30 reveals that there are 90 units on hand. Assume a periodic inventory system is used. Ending inventory under FIFO is
A)$738.
B)$792.
C)$1,740.
D)$1,794.

Question

Netta Shutters has the following inventory information.  A physical count of merchandise inventory on November 30 reveals that there are 90 units on hand. Assume a periodic inventory system is used. Ending inventory under FIFO is
A)$738. 
B)$792. 
C)$1,740. 
D)$1,794.

Quizplus · Accepted Answer

To calculate the ending inventory using FIFO, we assume that the first units purchased were the first ones sold. Therefore, the ending inventory consists of the most recent purchases.

First, we need to calculate the cost of goods sold (COGS) by adding up the cost of the units that were sold (72) and subtracting it from the cost of the beginning inventory (40 units x $10 per unit = $400) and purchases (100 units x $12 per unit = $1,200).

COGS = (40 x $10) + (32 x $12) = $400 + $384 = $784

Next, we need to calculate the value of the remaining inventory by multiplying the cost per unit of the most recent purchase by the number of units on hand.

Cost per unit of most recent purchase = $14

Value of inventory = 58 x $14 = $812

Therefore, the ending inventory under FIFO is $812.

Note: Choices A and C use the cost of the first purchase (40 units x $10 per unit = $400) as the cost of the ending inventory, which is incorrect under FIFO. Choice D calculates the value of the most recent purchase correctly but adds the cost of goods sold to it, which is incorrect.

Netta Shutters Has the Following Inventory Information