A company’s inventory records report the following:
August 1
Beginning balance
15 units @ $12
August 5
Purchase
10 units @ $13
August 12
Purchase
20 units @ $14
On August 15, it sold 30 units. Using the FIFO perpetual inventory method, what is the value of the inventory at August 15 after the sale? $140 $160 $210 $380 $590
The Correct Answer and Explanation is:
To determine the value of the inventory on August 15 after the sale, using the FIFO (First-In, First-Out) perpetual inventory method, we need to follow the logic of selling the oldest (first-in) units first and update inventory balances after each transaction.
📦 Inventory Records Before the Sale:
August 1 – Beginning Balance
15 units @ \$12 = \$180
August 5 – Purchase
10 units @ \$13 = \$130
Inventory after August 5:
- 15 units @ \$12
- 10 units @ \$13
= 25 units, total value = \$180 + \$130 = \$310
August 12 – Purchase
20 units @ \$14 = \$280
Inventory after August 12:
- 15 units @ \$12
- 10 units @ \$13
- 20 units @ \$14
= 45 units, total value = \$180 + \$130 + \$280 = \$590
🛒 August 15 – Sale of 30 Units (FIFO method):
Under FIFO, we sell from the oldest inventory first:
- Sell 15 units @ \$12 = \$180
- Sell 10 units @ \$13 = \$130
- Sell 5 units @ \$14 = \$70
Total cost of goods sold (COGS) = \$180 + \$130 + \$70 = \$380
📊 Remaining Inventory After Sale:
We sold a total of 30 units. Remaining units:
- 20 units @ \$14 → 5 units were sold, so 15 units left @ \$14 = 15 × \$14 = \$210
✅ Correct Answer: \$210
📘 Explanation (300+ words):
In inventory accounting, the FIFO perpetual method ensures that the earliest acquired goods are sold first. With perpetual tracking, the inventory is updated continuously after every transaction.
Here, the company began August with 15 units priced at \$12 each. A purchase on August 5 added 10 more units at \$13, and another on August 12 added 20 units at \$14 each. After all purchases, the company had 45 total units in inventory before the sale on August 15.
Under FIFO, the sale of 30 units means we sell the 15 oldest units first (from August 1), then the next 10 (from August 5), and the remaining 5 units from the August 12 purchase. This matches the FIFO principle of reducing the oldest inventory first.
The value of the sold units (COGS) equals:
- 15 × \$12 = \$180
- 10 × \$13 = \$130
- 5 × \$14 = \$70
→ Total COGS = \$380
After the sale, only 15 of the \$14 units (from August 12) remain. So, the ending inventory value is:
- 15 × \$14 = \$210
This is the value of inventory remaining on August 15.