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27 September, 08:38

A company: purchased 100 units for $20 each on January 31, purchased 100 units for $30 on February 28, and sold 150 units for $45 each from March 1 through December 31. If the company uses the First-in, First-out inventory costing method, what is the amount of inventory on the December 31 balance sheet

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  1. 27 September, 11:24
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    Ending inventory as at 31 December = $1500

    Explanation:

    First-In-First-Out is a method of inventory valuation whereby the stock that comes in first, is used first. This is common for inventory consisting of perishables, such as vegetables where if not used/sold soon, it would be wasted.

    Jan 31: Purchases = $20 x 100 units = $2000

    Remaining inventory:

    $20 x 100 units = $2000

    Feb 28: Purchases = $30 x 100 units = $3000

    Remaining inventory:

    $20 x 100 units = $2000

    $30 x 100 units = $3000

    Sales = 150 units x $45:

    $20 x 100 units = $2000

    $30 x 50 units = $1500

    Remaining inventory

    200 - 150 = 50 units x $30 = $1500

    Thus,

    Cost of Goods Sold = $3500 ($2000 + $1500)

    Ending inventory as at 31 December = $1500
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