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?

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?

Quizplus · Accepted Answer

To determine the value of ending inventory using the FIFO method, we need to assume that the 120 units on hand at the end of January were the last 120 units purchased. From the details given, we know that the company purchased 200 units on January 15 for $2.50 each and 100 units on January 25 for $2.60 each.

Thus, the cost of the 120 units on hand at the end of January can be calculated as follows:
- 100 units from January 25 at $2.60 each = $260
- 20 units from January 15 at $2.50 each = $50
Total = $310

Therefore, the value of the ending inventory using the FIFO method is $310. However, this answer is not one of the choices given. To find the closest choice, we need to calculate the total cost of all the units purchased in January and subtract the cost of the units that were sold during the month to arrive at the cost of the ending inventory.

Total cost of units purchased = (200 x $2.50) + (100 x $2.60) = $500 + $260 = $760
Total cost of units sold = (80 x $2.50) + (100 x $2.60) = $200 + $260 = $460
Cost of ending inventory = $760 - $460 = $300

The closest choice to $300 is C, so the answer is C.

Graham Company Uses a Periodic Inventory System