A company purchased 90 units for $20 each on January 31. It purchased 180 units for $25 each on February 28. It sold 180 units for $60 each from March 1 through December 31. If the company uses the first-in, first-out inventory costing method, what is the amount of Cost of Goods Sold on the income statement for the year ending December 31? (Assume that the company uses a perpetual inventory system.)

Question

Quizplus · Accepted Answer

Under the first-in, first-out (FIFO) method, the cost of goods sold is based on the cost of the oldest inventory. The company sold 180 units, so the first 90 units sold would be at the January 31 purchase price of $20 each, and the next 90 units would be at the February 28 purchase price of $25 each. Therefore, the cost of goods sold is (90 units * $20) + (90 units * $25) = $1,800 + $2,250 = $4,050.

A Company Purchased 90 Units for $20 Each on January