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Ashland Company has a perpetual inventory system and uses the FIFO method of inventory costing. Ashland had a beginning inventory of 50 units and reported the following events during the month of June:

-The cost of goods sold for the June 5 sale is:
A)$525
B)$600
C)$500
D)$550

Question

Use the following to answer questions 
Ashland Company has a perpetual inventory system and uses the FIFO method of inventory costing. Ashland had a beginning inventory of 50 units and reported the following events during the month of June:
 
-The cost of goods sold for the June 5 sale is:
A)$525 
B)$600 
C)$500 
D)$550

Quizplus · Accepted Answer

According to the FIFO method, the cost of goods sold is calculated by assuming that the first units purchased are the first units sold. Therefore, the cost of goods sold for the 30 units sold on June 5 would be calculated as follows:
- 20 units from beginning inventory at $8 each = $160
- 10 units from the June 16 purchase at $10 each = $100
Total cost of goods sold for the June 5 sale = $160 + $100 = $260
Since the selling price for each unit was $20, the total revenue for the June 5 sale was $600. Therefore, the gross profit for this sale was $600 - $260 = $340.

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