Question

Sheffield Limited uses a perpetual inventory system. The inventory records show the following data for its first month of operations: Date Explanation Balance in Units Units 244 Aug. 2 Purchases Unit Cost $73 102 Total Cost $17,812 50,184 244 Purchases 492 736 443 3 10 15 25 Sales Purchases Sales (293) 936 115 107,640 1,379 (331) 1,048 Calculate the cost of goods sold and ending inventory using the FIFO cost method. Cost of goods sold $ Ending inventory $

Answer 1

Under FIFO method all the sales are made from such inventory which is purchased first, so the cost of goods sold will be calculated as follows,

1. Sale of 293 units, 244 units will be from August 2nd purchases, remaining will be from August 3rd purchases.

• 244 x 73 = 17,812.
• (293 - 244) x 102 = 4,998.
• Therefore total cost is 22,810.

2. Sale of 331 units, will be made from remaining units from August 3rd purchases and there after from August 15 purchases.

• 331 x 102 = 33,762.
• August 3 purchases are enough for sales of 331 units as there are still 443 units left from there.
• Total cost is 33,762.

therefore total cost of goods sold is 56,572.

Inorder to calculate the ending inventory we should consider all the units which are purchased latest and left unsold under FIFO method.

1. August 3 purchases,
   • (492 - 49 - 331) = 112 units,
   • 112 x 102 = 11,424.
2. August 25 purchases,
   • 936 x 115 = 107,640.

total ending inventory cost = 119,064.

as it is the 1st month of the shelfield limited, there won't be any opening inventory.