RJ Corporation has provided the following information about one of its inventory items: During the year, RJ sold 3,000 units. What was ending inventory using the FIFO cost flow assumption under a periodic inventory system?
A)$640,000.
B)$840,000.
C)$960,000.
D)$880,000.

Question

RJ Corporation has provided the following information about one of its inventory items:  During the year, RJ sold 3,000 units. What was ending inventory using the FIFO cost flow assumption under a periodic inventory system?
A)$640,000. 
B)$840,000. 
C)$960,000. 
D)$880,000.

Quizplus · Accepted Answer

Since the FIFO assumes that the oldest units are sold first, the cost of goods sold will be based on the cost of the oldest inventory items. Therefore, the ending inventory will be based on the cost of the newest items.

We do not have information about the cost of the inventory in order to calculate the actual value of ending inventory. However, we can use the cost of goods sold (COGS) to calculate the cost of the goods available for sale (COGAS) and subtract COGS to find the ending inventory.

COGAS = (3,000 units sold) x (unknown cost per unit) = unknown
COGS = (3,000 units sold) x ($200 cost per unit) = $600,000
Ending inventory = COGAS - COGS = unknown - $600,000

Therefore, the answer can only be B or D since only those choices are below the given COGAS range. However, since ending inventory is usually less than COGAS, the answer is B, $840,000.

RJ Corporation Has Provided the Following Information About One of Its