Santa Fe Tile Company had the following inventory purchases and sales during the month of May. The company uses the periodic inventory method. If Santa Fe uses FIFO costing, how much was the Ending inventory balance?

Question

Santa Fe Tile Company had the following inventory purchases and sales during the month of May. The company uses the periodic inventory method.  If Santa Fe uses FIFO costing, how much was the Ending inventory balance?

Quizplus · Accepted Answer

Using FIFO costing, we assume that the oldest inventory is sold first. Therefore, the cost of goods sold is calculated based on the cost of the earliest purchases, and the cost of the ending inventory reflects the cost of the most recent purchase.

To calculate the cost of goods sold, we start with the earliest purchases and work our way forward:

- May 3: Purchase of 500 tiles at $3 per tile = $1,500 
- May 11: Purchase of 600 tiles at $3.20 per tile = $1,920 
- May 19: Purchase of 400 tiles at $3.50 per tile = $1,400

Total cost of goods available for sale = $4,820

We then calculate the cost of goods sold using the formula:

Beginning inventory + Purchases - Ending inventory = Cost of goods sold

Assuming the beginning inventory was zero:

0 + $4,820 - Ending inventory = $3,670

Ending inventory = $1,150

Therefore, the Ending inventory balance is $2,930 (300 tiles at $3.50 per tile + 150 tiles at $3.20 per tile). The correct answer is D).

Santa Fe Tile Company Had the Following Inventory Purchases and Sales