A company just starting business made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for June is
A) $653.
B) $1,272.
C) $1,447.
D) $1,564.

Question

A company just starting business made the following four inventory purchases in June:  A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for June is
A) $653. 
B) $1,272. 
C) $1,447. 
D) $1,564.

Quizplus · Accepted Answer

Using the FIFO method, we assume that the first units purchased are the first ones sold. Therefore, the cost of goods sold for June will be calculated as follows:

- First, we sell the 70 units from the June 3 purchase at $5 per unit, for a total of $350.
- Next, we sell 90 units from the June 18 purchase at $7 per unit, for a total of $630.
- Finally, we sell 40 units from the June 24 purchase at $8 per unit, for a total of $320.

The total cost of goods sold for June is therefore $350 + $630 + $320 = $1,300.

To calculate the value of the remaining inventory, we need to determine the cost of the last units purchased. In this case, we have 200 units on hand and we know that we sold 70 + 90 + 40 = 200 units, so we must have used up all of the units from the June 3, June 18, and June 24 purchases.

Therefore, the remaining 100 units must come from the June 29 purchase at a cost of $9 per unit, for a total of $900.

The total cost of goods available for sale is $350 + $700 + $720 + $900 = $2,670.

The cost of goods sold is $1,300, so the cost of the remaining inventory is $2,670 - $1,300 = $1,370.

Therefore, the amount allocated to cost of goods sold for June is $1,300.

A Company Just Starting Business Made the Following Four Inventory