Question

Samuelson and Messenger (SAM) began 2021 with 360 units of its one product. These units were purchased near the end of 2020 for $25 each. During the month of January, 180 units were purchased on January 8 for $28 each and another 360 units were purchased on January 19 for $30 each. Sales of 140 units and 260 units were made on January 10 and January 25, respectively. There were 500 units on hand at the end of the month. SAM uses a periodic inventory system. Required: 1. Calculate ending inventory and cost of goods sold for January using FIFO. 2. Calculate ending inventory and cost of goods sold for January using average cost.

Answer 1

Answer:

1. Ending inventory (FIFO) = $ 14720

Cost of goods sold (FIFO) = $ 10120

2. Ending inventory (average cost) = $ 14720

Cost of goods sold (average cost) =  $ 10120

Explanation:

The FIFO method is a system that facilitates the immediate exit of merchandise that first entered the warehouse. Hence the term "First In First Out". In this way, the stock is constantly renewed, and avoid keeping products in the warehouse for a long time.  

This method basically consists giving out of the inventory those products that were purchased first, so that in the inventories will be those most recently purchased products.

Weighted average method is used to make an inventory valuation, taking average values for both the merchandise in stock and costs of merchandise sold.

(See attached inventory spreadsheet to calculate value of FIFO and Average ending inventory).

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