{"id":191845,"date":"2025-02-16T08:55:54","date_gmt":"2025-02-16T08:55:54","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=191845"},"modified":"2025-02-16T08:55:57","modified_gmt":"2025-02-16T08:55:57","slug":"dec-31-beginning-inventory","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/02\/16\/dec-31-beginning-inventory\/","title":{"rendered":"Dec 31 Beginning inventory"},"content":{"rendered":"\n

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<\/p>\n\n\n\n

The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n

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:<\/p>\n\n\n\n

Information Provided:<\/h3>\n\n\n\n
Date<\/th>Event<\/th>Units<\/th>Unit Cost<\/th>Total Cost<\/th><\/tr><\/thead>
Dec 31<\/td>Beginning Inventory<\/td>160<\/td>21<\/td>3,360<\/td><\/tr>
Jan 2<\/td>Purchase<\/td>100<\/td>22<\/td>2,200<\/td><\/tr>
Jan 6<\/td>Sale<\/td>180<\/td>–<\/td>–<\/td><\/tr>
Jan 9<\/td>Sale Return<\/td>10<\/td>21<\/td>210<\/td><\/tr>
Jan 9<\/td>Purchase<\/td>75<\/td>24<\/td>1,800<\/td><\/tr>
Jan 10<\/td>Purchase Return<\/td>15<\/td>24<\/td>360<\/td><\/tr>
Jan 23<\/td>Sale<\/td>50<\/td>–<\/td>–<\/td><\/tr>
Jan 30<\/td>Sale<\/td>100<\/td>–<\/td>–<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Step 1: FIFO Method<\/h3>\n\n\n\n

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.<\/p>\n\n\n\n

Step 2: Sales and Returns<\/h3>\n\n\n\n

Sale on Jan 6 (180 units):<\/h4>\n\n\n\n
    \n
  • We start with the beginning inventory (160 units at $21) and then use the next purchase (100 units at $22).<\/li>\n\n\n\n
  • 160 units \u00d7 $21 = $3,360 (from beginning inventory)<\/li>\n\n\n\n
  • 20 units \u00d7 $22 = $440 (from the Jan 2 purchase)<\/li>\n\n\n\n
  • Total cost of goods sold for this sale = $3,360 + $440 = $3,800<\/li>\n<\/ul>\n\n\n\n

    Sale Return on Jan 9 (10 units):<\/h4>\n\n\n\n
      \n
    • These units were returned at a cost of $21 each (cost of goods sold adjustment).<\/li>\n\n\n\n
    • 10 units \u00d7 $21 = $210 (added back to inventory)<\/li>\n<\/ul>\n\n\n\n

      Purchase on Jan 9 (75 units at $24):<\/h4>\n\n\n\n
        \n
      • These units are added to the inventory at $24 each.<\/li>\n<\/ul>\n\n\n\n

        Purchase Return on Jan 10 (15 units at $24):<\/h4>\n\n\n\n
          \n
        • These units are returned, reducing the inventory at $24 each.<\/li>\n\n\n\n
        • 15 units \u00d7 $24 = $360 (removed from inventory)<\/li>\n<\/ul>\n\n\n\n

          Sale on Jan 23 (50 units):<\/h4>\n\n\n\n
            \n
          • Using FIFO, we sell the remaining inventory in the order it was purchased.<\/li>\n\n\n\n
          • 50 units \u00d7 $22 = $1,100 (from the Jan 2 purchase)<\/li>\n<\/ul>\n\n\n\n

            Sale on Jan 30 (100 units):<\/h4>\n\n\n\n
              \n
            • We sell 100 units, using the remaining inventory.<\/li>\n\n\n\n
            • 75 units \u00d7 $22 = $1,650 (from the Jan 2 purchase)<\/li>\n\n\n\n
            • 25 units \u00d7 $24 = $600 (from the Jan 9 purchase)<\/li>\n<\/ul>\n\n\n\n

              Step 3: Calculation of Ending Inventory<\/h3>\n\n\n\n

              After all sales and returns, we calculate the remaining inventory.<\/p>\n\n\n\n

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

                Step 4: Gross Profit Calculation<\/h3>\n\n\n\n

                Gross profit is calculated by subtracting the cost of goods sold from the total revenue from sales.<\/p>\n\n\n\n

                \n\n\n\n

                Now let’s calculate the values for COGS, ending inventory, and gross profit:<\/p>\n\n\n\n

                  \n
                1. Cost of Goods Sold (COGS):<\/strong><\/li>\n<\/ol>\n\n\n\n
                    \n
                  • COGS = $3,800 + $210 (sale return) + $1,100 + $1,650 = $6,760<\/strong><\/li>\n<\/ul>\n\n\n\n
                      \n
                    1. Ending Inventory:<\/strong><\/li>\n<\/ol>\n\n\n\n
                        \n
                      • Ending Inventory = Remaining units at $24 and $22 = $2,730<\/strong><\/li>\n<\/ul>\n\n\n\n
                          \n
                        1. Gross Profit:<\/strong><\/li>\n<\/ol>\n\n\n\n
                            \n
                          • Gross Profit = Revenue – COGS = $13,800 – $6,760 = $7,040<\/strong><\/li>\n<\/ul>\n\n\n\n

                            Let me generate a summary table for you.<\/p>\n\n\n\n

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

                              \n
                            1. Cost of Goods Sold (COGS)<\/strong> = $6,760<\/li>\n\n\n\n
                            2. Ending Inventory<\/strong> = $2,730<\/li>\n\n\n\n
                            3. Gross Profit<\/strong> = $7,040<\/li>\n<\/ol>\n\n\n\n

                              Let me know if you’d like further clarifications or additional details.<\/p>\n","protected":false},"excerpt":{"rendered":"

                              Dec 31 Beginning inventoryJanJan.JanJan.2699PurchaseSaleSale returnPurchaseJan 10 Purchase returnJan. 10Jan. 23SalePurchaseJan. 30 Sale16010018010751550100120$212240402424452651Using 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 soldEnding InventoryGross Profit The Correct Answer and Explanation is : […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-191845","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/191845","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=191845"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/191845\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=191845"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=191845"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=191845"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}