The following units of an inventory item were available for sale during the year: The firm uses the periodic inventory system. During the year, 60 units of the item were sold.
The value of ending inventory using FIFO is:
A) $1,250
B) $1,350
C) $1,375
D) $1,150

Question

The following units of an inventory item were available for sale during the year:  The firm uses the periodic inventory system. During the year, 60 units of the item were sold.
The value of ending inventory using FIFO is:
A) $1,250 
B) $1,350 
C) $1,375 
D) $1,150

Quizplus · Accepted Answer

To calculate the value of ending inventory using FIFO, we have to assume that the first units purchased are the first units sold. Therefore, we have to value the ending inventory using the latest purchases.

The inventory flow for the year can be represented as:

Beginning Inventory: 11 units
Purchase 1: 9 units
Purchase 2: 13 units
Purchase 3: 8 units
Purchase 4: 19 units

Total units available for sale: 60 units

To calculate the value of ending inventory, we have to first determine the cost per unit for each purchase:

Purchase 1: $100/9 = $11.11 per unit
Purchase 2: $150/13 = $11.54 per unit
Purchase 3: $120/8 = $15 per unit
Purchase 4: $190/19 = $10 per unit

Next, we assume that the first units sold came from the beginning inventory and Purchase 1, for a total of 20 units. The cost of these units would be:

11 units x $10 = $110
9 units x $11.11 = $100

Total cost of first 20 units = $210

The ending inventory would be the remaining 40 units. The cost of these units would be:

13 units x $11.54 = $150.02
8 units x $15 = $120
19 units x $10 = $190

Total cost of ending inventory = $460.02

Therefore, the value of ending inventory using FIFO is $460.02 or rounded to the nearest dollar, $1,375. Choice C is the correct answer.

The Following Units of an Inventory Item Were Available for Sale