The inventory record for a particular item for Year 2 appears below.
$\begin{array}{|l|l|l|l|}
\hline \text { Inventory, January 1, Year 2 } & 20,000 & \$ 0.20 & \$ 4,000 \
\hline \text { Purchases: } & & & \
\hline \text { March 2 } & 4,000 & .24 & \$ 960 \
\hline \text { April 30 } & 3,000 & .28 & 840 \
\hline \text { June 15 } & 6,000 & .32 & 1,920 \
\hline \text { September 30 } & 2,000 & .26 & 520 \
\hline \text { December } 15 & 1.000 & .20 & 200 \
\hline \text { Total purchases } & 16.000 & & \$ 4,440 \
\hline \text { Total available for sale } & 36,000 & & \$ 8,440 \
\hline \text { Units sold } & 28,000 & & \
\hline
\end{array}$ Refer to the Inventory Record example.The cost of goods sold for year 2 under FIFO is:
A)$6,040
B)$6,120
C)$6,320
D)$6,520
E)$6,840

Question

Quizplus · Accepted Answer

Under the FIFO (First-In, First-Out) method, the oldest inventory costs are assigned to the cost of goods sold first. The calculation for the cost of goods sold (COGS) for the 28,000 units sold in Year 2 under FIFO is as follows:1. From Inventory, January 1: 20,000 units at $0.20 = $4,0002. From March 2 Purchase: 4,000 units at $0.24 = $9603. From April 30 Purchase: 3,000 units at $0.28 = $8404. From June 15 Purchase: 1,000 units at $0.32 = $320 (only 1,000 of the 6,000 units are needed to reach the 28,000 units sold)Adding these amounts together gives the COGS under FIFO:$4,000 + $960 + $840 + $320 = $6,120

The Inventory Record for a Particular Item for Year 2