Question

Dec 1 Beg merchandise inventry 13 units @ $ 9 each

Dec 8 sale 8 units @ $ 22 each

Dec 14 Purchase 16 units @ 14 each

Dec 21 Sale 14 units @ $22 each

1. Compute the cost of cost of goods sold, cost of ending merchandise inventory using the FIFO inventory costing method.

	Purchases			Cost of Goods Sold				Inventory on Hand
Date	Quantity	Unit	Total Cost	Quantity	Unit	Total Cost			Unit	Total Cost
		Cost			Cost			Quantity	Cost
Dec. 1								13 units	× $ 9	= $117	$    117
8				8 units	× $ 9	= $ 72	$ 72	5 units	× $ 9	= $45	$      45
14	16 units	× $ 14	= $ 224					5 units	× $ 9	= $45	$    269
								16 units	× $ 14	= $224
21				5 units	× $ 9	= $ 45	$ 171				$      98
				9 units	× $ 14	= $ 126		7 units	× $ 14	= $98
Totals	16 units		$224	22 units			$243	7 units			$      98

Can someone explain me how we got the answer step by step please.

Answer 1

FIFO Method: - FIFO stands for first in first out that means the inventory that comes first will go first. This is simple and basic rule of FIFO method.

Now let’s come to this specific question:-

On Dec 1 – We have 13 units purchased @ $ 9 each,

On next date i.e. Dec 8 - sale of 9 units @ 22 each

Inventory out of 13 units available on Dec 1 sold so cost will be taken $ 9 each and units remained i.e. 5 units will be valued @ $ 9 each

On Next date Dec 14 – Purchase 16 units @ 14 each

Now in the inventory there is two types of goods , 1^st – Inventory of Dec 1 available after sale on Dec 8 i.e. 5 units and 2^nd – Goods purchased on Dec 14 i.e. 16 units @ $ 14 each.

Now on next date Dec 21 – Sale of 14 units @ $ 22 each

Now out of above mentioned two type of goods on Dec 14 – Firstly we will remove goods that comes first in store i.e. remaining 5 units of Dec 1 and remaining 9 units will be removed from inventory purchased on Dec 14

So the same is shown in the table that 5 units @ 9 each and 9 units @ 14 each is considered for the calculation of cost of goods sold and units remained will be out of units purchased on Dec 21 i.e. @14 each .

And the available sheet is self explanatory if you consider the point that Units available first will go out first.