Question

Fabulous Frames Frame Shop wants to know the effect of different inventory costing methods on its financial statements. Inventory and purchases data for June are:
Units Unit Cost Total Cost
Jun 1 Begining inventory 2,200 $ 13.00 $28, 600
4 Purchase 1,700 $ 13.40 22,780
9 Sale (1900)
Required:
1. If Fabulous Frames Frame Shop uses the FIFO method, the cost of the ending inventory will be _________.
A. $ 25,000.
B. $ 26, 680.
C. $ 22, 780.
D. $ 24, 700.

Answer 1

Answer:

B. $26680

Explanation:

FIFO (First-In-First-Out) is a method of inventory valuation whereby the inventory that comes first is used first. In other words, the oldest inventory is used first. This is common for perishable stocks which if held too long would be wasted.

Jun 1 : Beginning Inventory : 2200 units x $13 = $28600

Jun 4 : Purchases : 1700 units x $13.4 = $22780

Total units : 2200 + 1700 = 3900 units

Sales : 1900 units

Cost of Goods Sold would be:

1900 x $13 = $24700

Ending inventory:

(2200 - 1900) x $13 = $3900

1700 x $13.4 = $22780

Ending inventory : $3900 + $22780 = $26,680