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

Under FIFO method, assuming the earliest units of inventory are sold first, the cost of goods sold will be based on the cost of the first units purchased, while the ending inventory will be based on the cost of the latest units purchased.

Based on the given data, Adam Inc. purchased 20 units of inventory at a cost of $10 each on January 4 and another 10 units at a cost of $20 each on January 20.

Thus, the cost of goods sold (COGS) for the 21 units sold in January would be:

COGS = 20 x $10 + 1 x $20 = $220

The ending inventory would, therefore, be:

Ending inventory = (10-1) x $20 = $160

Therefore, the answer is C) $16.

Adam IncUses a Perpetual Inventory System