Question

Lauer Corporation provided the following information about one of its laptop computers: Date Transaction Number of Units Cost per Unit 1/1 Beginning Inventory 290 $ 990 5/5 Purchase 390 $ 1,090 8/10 Purchase 490 $ 1,190 10/15 Purchase 295 $ 1,240 During the year, Lauer sold 1,225 laptop computers. What was cost of goods sold using the FIFO cost flow assumption

Answer 1

Answer:

Cost of Goods sold under FIFO is $1,363,500

Explanation:

The FIFO or First In First Out method is a method for closing inventory or Cost of goods sold valuation. It values the inventory based on the assumption that the units that are purchased first will be the ones to be sold first and the closing inventory consists of the most recently purchased inventory which is not sold yet.

The total units that are available for sale for the month are,

Total units available for sale = 290 + 390 + 490 + 295 = 1465 laptops

The units sold are 1225.

The closing inventory is thus = 1465 - 1225 = 240 laptops

Units sold from 10/15 Purchase = 295 - 240 = 55 units

As we are using FIFO, the 240 laptops left as closing inventory will be from the last purchase made on 10/15. Thus, the cost of goods sold will consist of the cost of,

Cost of goods sold

Beginning inventory    (290 * 990)         287100

5/5 Purchase                (390 * 1090)        425100

8/10 Purchase               (490 * 1190)         583100

10/15 Purchase              (55 * 1240)          68200

Total                                                           1,363,500