ABC Co. uses a perpetual inventory system and uses the FIFO cost flow assumption. During the month, it had two sales. Calculate the dollar value of its cost of goods sold for the first sale made on Jan. 10.
Jan 1
Beginning Inventory
8 @ $12= $96
Jan 5
Purchase
12 @ $15= $180
Jan 25
Purchase
10 @ $18= $180
Jan 10
Sale
11 units x $50 each
Jan 30
Sale
3 units x $55 eac
The Correct Answer and Explanation is :
To calculate the cost of goods sold (COGS) for the first sale made on January 10 under a FIFO (First In, First Out) method, we will use the information provided, considering that FIFO assumes the first items purchased are the first ones sold.
Step-by-Step Calculation:
- Inventory as of January 1 (Beginning Inventory):
- 8 units @ $12 = $96
- Purchase on January 5:
- 12 units @ $15 = $180
- Sale on January 10:
- 11 units are sold at $50 each.
FIFO Assumption:
- Under FIFO, the first items to be sold are the oldest items in inventory.
So, for the sale on January 10, the 11 units sold will be taken from the beginning inventory first, followed by the next purchase.
- From the January 1 inventory (8 units @ $12):
- 8 units will be sold at $12 each = $96.
- For the remaining 3 units needed to complete the sale of 11 units, we move to the next purchase on January 5 (12 units @ $15):
- 3 units will be sold at $15 each = $45.
Total COGS for the sale on January 10:
- 8 units @ $12 = $96
- 3 units @ $15 = $45
- Total COGS = $96 + $45 = $141
Explanation:
- The FIFO method ensures that the first items purchased are the first items sold.
- The cost of goods sold for the first sale involves taking the 8 units from the beginning inventory (purchased at $12 each) and then the remaining 3 units from the January 5 purchase (at $15 each).
- This method helps reflect the cost of older inventory first, which is useful during periods of rising prices, as it matches the older, lower-cost items with the sales revenue.
Let me generate the image with a breakdown of the inventory and sales calculations.
Here is the infographic illustrating the FIFO method for the first sale on January 10. It shows the inventory details, the sale breakdown, and the calculation of the cost of goods sold. Let me know if you need further explanations or adjustments!
