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19 January, 20:29

Perpetual Inventory Using FIFO Beginning inventory, purchases, and sales data for prepaid cell phones for May are as follows: Inventory Purchases Sales May 1 1,600 units at $31 May 10 800 units at $33 May 12 1,120 units May 20 720 units at $35 May 14 960 units May 31 480 units 1. Assume that the business maintains a perpetual inventory system, costing by the first-in, first-out method. Determine the cost of merchandise sold for each sale and the inventory balance after each sale.

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  1. 19 January, 22:20
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    First sale = $34720

    Second sale = $29760

    Third sale = $14880

    Inventory balance after 1st sale = $366480

    Inventory balance after 2nd sale = $346720

    Inventory balance after 3rd sale = $331840

    Explanation:

    Under the FIFO method of inventory measurement, inventory that arrives and/or is purchased in the beginning should be sold first, which means the latest inventory is kept therefore the cost of ending inventory under FIFO is greater than other inventory measurement methods due to latest prices which keep increasing as a result of inflation.

    1120 units of inventory is sold first on May 12, the inventory is sold from the inventory of May 10, the cost of this sale is as follows:

    First sale = 1120 * $31

    First sale = $34720

    From the opening inventory 10480 units are left (11600-1120).

    Inventory balance = (10480 * $31) + (800*$33) + (720 * $35)

    Inventory balance = $366480

    The second sale is of 960 units on May 14.

    (Note: under FIFO until initial units are fully sold no later inventory is sold before them).

    Second sale = 960 * $31

    Second sale = $29760

    Inventory balance = {9520*$31) } + (800*$33) + (720 * $35)

    Inventory balance = $346720

    The third sale is of 480 units on May 31.

    Third sale = 480 * $31

    Third sale = $14880

    Inventory balance = {9040*$31) } + (800*$33) + (720 * $35)

    Inventory balance = $331840
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