Dec 31 Beginning inventory

Dec 31 Beginning inventory
Jan
Jan.
Jan
Jan.
2
6
9
9
Purchase
Sale
Sale return
Purchase
Jan 10 Purchase return
Jan. 10
Jan. 23
Sale
Purchase
Jan. 30 Sale
160
100
180
10
75
15
50
100
120
$21
22
40
40
24
24
45
26
51
Using FIFO method, calculate (1) cost of goods sold, (ii) ending inventory, and (iii) gross profit. (Assume sales returns had a cost of $21 and purchase returns had a cost of $24.)
Cost of goods sold
Ending Inventory
Gross Profit

The Correct Answer and Explanation is :

To calculate the cost of goods sold (COGS), ending inventory, and gross profit using the FIFO (First-In-First-Out) method, we will follow these steps:

Information Provided:

Date	Event	Units	Unit Cost	Total Cost
Dec 31	Beginning Inventory	160	21	3,360
Jan 2	Purchase	100	22	2,200
Jan 6	Sale	180	–	–
Jan 9	Sale Return	10	21	210
Jan 9	Purchase	75	24	1,800
Jan 10	Purchase Return	15	24	360
Jan 23	Sale	50	–	–
Jan 30	Sale	100	–	–

Step 1: FIFO Method

In the FIFO method, the first units purchased are the first ones sold. This means we use the earliest purchases first when calculating the cost of goods sold.

Step 2: Sales and Returns

Sale on Jan 6 (180 units):

• We start with the beginning inventory (160 units at $21) and then use the next purchase (100 units at $22).
• 160 units × $21 = $3,360 (from beginning inventory)
• 20 units × $22 = $440 (from the Jan 2 purchase)
• Total cost of goods sold for this sale = $3,360 + $440 = $3,800

Sale Return on Jan 9 (10 units):

• These units were returned at a cost of $21 each (cost of goods sold adjustment).
• 10 units × $21 = $210 (added back to inventory)

Purchase on Jan 9 (75 units at $24):

• These units are added to the inventory at $24 each.

Purchase Return on Jan 10 (15 units at $24):

• These units are returned, reducing the inventory at $24 each.
• 15 units × $24 = $360 (removed from inventory)

Sale on Jan 23 (50 units):

• Using FIFO, we sell the remaining inventory in the order it was purchased.
• 50 units × $22 = $1,100 (from the Jan 2 purchase)

Sale on Jan 30 (100 units):

• We sell 100 units, using the remaining inventory.
• 75 units × $22 = $1,650 (from the Jan 2 purchase)
• 25 units × $24 = $600 (from the Jan 9 purchase)

Step 3: Calculation of Ending Inventory

After all sales and returns, we calculate the remaining inventory.

• The inventory after the Jan 6 sale has 20 units at $22.
• After the sale return on Jan 9, we add 10 units at $21.
• After the purchase return on Jan 10, 15 units at $24 are subtracted.
• After the sales on Jan 23 and Jan 30, we are left with units from the Jan 9 purchase at $24.

Step 4: Gross Profit Calculation

Gross profit is calculated by subtracting the cost of goods sold from the total revenue from sales.

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Now let’s calculate the values for COGS, ending inventory, and gross profit:

1. Cost of Goods Sold (COGS):

• COGS = $3,800 + $210 (sale return) + $1,100 + $1,650 = $6,760

1. Ending Inventory:

• Ending Inventory = Remaining units at $24 and $22 = $2,730

1. Gross Profit:

• Gross Profit = Revenue – COGS = $13,800 – $6,760 = $7,040

Let me generate a summary table for you.

I have provided a table summarizing the events with the respective units, unit costs, and total costs. Here’s the breakdown for your calculations:

1. Cost of Goods Sold (COGS) = $6,760
2. Ending Inventory = $2,730
3. Gross Profit = $7,040

Let me know if you’d like further clarifications or additional details.