A company uses a periodic inventory system. Details for the inventory account for the month of January, 2020 are as follows:

Date Units unit cost Total

Beginning, 1/1 200 $5.00 $1,000

Purchase, 1/15 100 5.30 530

Purchase, 1/28 100 5.50 550

An end of the month (1/31/2020) inventory showed that 120 units were on hand. If the company uses FIFO, what is the value of the ending inventory?

Answer: $656

Explanation:

Beginning inventory = 200 * $5 = $1000

Purchases (1/15) = 100 * $5.30 = $530

Purchases (1/28) = 100 * $5.50 = $550

Total available units = (200 + 100 + 100) = 400

Total units sold = (total available units - ending inventory)

= 400 - 120 = 280 units

Therefore, according to the First-in, First-out inventory method, goods are sold based on how it was purchased, that is cost of goods sold is based on or associated with the cost of the first inventory purchased until the units of the inventory is exhausted. Then we move to the next inventory.

Therefore, units sold is 240

First 200 units sold = $5 per unit =

200 * $5 = $1000

Next 80 units sold = $5.30 per unit =

80 * $5.30 = $424

Therefore, ending inventory:

(100 - 80) * $5.30 = $106

100 * $5.50 = $550

Ending inventory = $ (106 + 550) = $656