Adam Inc.uses a perpetual inventory system. If Adam uses the FIFO method, how much is ending inventory on January 31?

Question

Adam Inc.uses a perpetual inventory system.  If Adam uses the FIFO method, how much is ending inventory on January 31?

Quizplus · Accepted Answer

First, we need to calculate the cost of goods sold (COGS) for the month of January:
5 units were sold on January 7 for $3 each, for a total of $15
3 units were sold on January 18 for $4 each, for a total of $12
This means that the COGS for January is $27.

To calculate the ending inventory using the FIFO method, we need to assume that the units sold were the oldest units in inventory, and what remains are the newest units.

On January 1st, there were 20 units in inventory at a cost of $2 each, for a total of $40. Since we sold 5 units on January 7, we would assume that the remaining 15 units were the newer units purchased on January 4th at a cost of $3 each.

On January 18, we sold 3 more units, which we would assume were the oldest of the remaining 15 units. That leaves 12 units left in inventory.

To calculate the value of the ending inventory, we multiply the number of units remaining (12) by the cost per unit of the newest units (which we assume to be $3), which gives us an ending inventory value of $36.

Therefore, the answer is C) $16.

Adam IncUses a Perpetual Inventory System