Question

Widget Company started the month with 10 gadgets in its Inventory that cost $5 each. During the month, Widget bought 50 more gadgets that cost $6 each. At the end of the month, Widget counted its inventory and found that 8 gadgets remained unsold. If Widget uses FIFO, its Cost of Goods Sold for the month is ______.

Answer 1

Answer:

$302.

Explanation:

FIFO is an inventory management method. As the name says, First-In First-Out, it assumes that the oldest recorded inventory is sold first. This can be the assumption of management as the goods sold can be the ones that were recently purchased. So, the cost of oldest inventory is to be charged Cost of Goods Sold first and then that of the recent ones, if any.

Calculation

Gadgets Sold = 10 + 50 - 8 = 52 gadgets were sold during the period. Under the FIFO cost flow assumption, the cost of oldest gadgets that is $50 (10 * 5) is to be charged to P&L first and then of the newer ones which is $252 (42 * 6). This makes the total cost of goods sold for month to be $302 (252 + 50).