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A company has beginning inventory of 40 units at a cost of $12.50 each on October 1. On October 5, it purchases 26 units at $13.50 per unit. On October 12 it purchases 36 units at $14.50 per unit. On October 15, it sells 78 units. Using the FIFO periodic inventory method, what is the value of the inventory at October 15 after the sale?

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Answer:

Ending inventory as at Oct 15 : $348

Explanation:

The FIFO (First-In-First-Out) method of inventory valuation is whereby the stock that enters first into inventory is the one that is sold or used first. In other words, the oldest stock is used first. This is common for inventory consisting of perishables such as vegetables, which will be wasted if not used soon.

Oct 1 : Beginning inventory : 40 units x $12.50 = $500

Oct 5 : Purchases : 26 units x $13.50 = $351

Oct 12 : 36 units x $14.50 = $522

Oct 15 : Sales : 78 units. This consists of:

40 units x $12.50 = $500

26 units x $13.50 = $351

12 units x $14.50 = $174

Hence, Cost of Goods sold is : $500 + $351 + $174 = $1025

Ending inventory is (36-12) x $14.50 = $348

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