Question

Zimmerman Corp. had 1,500 units of part M.O. on hand May 1, 2020, costing $21 each. Purchases of part M.O. during May were as follows.
Units Unit Cost
May 9 2,000 $22.00
17 3,500 23.00
26 1,000 24.00

A physical count on May 31, 2020, shows 2,000 units of part M.O. on hand. Using the FIFO method, what is the cost of part M.O. inventory at May 31, 2020?

Answer 1

Answer:

Zimmerman Corp

Using the FIFO method, the cost of part M.O. ending inventory at May 31, 2020 is

$47,000

Explanation:

a) Data and Calculations:

Date                Items                                       Units    Unit price  Total

May 1, 2020  Beginning inventory of M.O.   1,500    $21.00       $31,500

May 9            Purchases                               2,000      22.00         44,000

May 17           Purchases                               3,500      23.00         80,500

May 26         Purchases                                1,000      24.00        24,000

                     Total                                        8,000                    $180,000

May 31          Ending inventory                     2,000

Valuation of ending inventory under FIFO:

Ending inventory = (1,000 * $24) + (1,000 * $23) = $47,000

Cost of goods sold = ($180,000 - $47,000) = $133,000

Under the FIFO method of inventory valuation, it is assumed that goods sold are from the ones put in store first.  This means that the earlier purchased goods are sold first before the later ones.  Therefore, the ending inventory is always from the inventories that are newly purchased.