Question

Assume that three identical units of merchandise are purchased during October, as follows: Units Cost October 5 Purchase 1 $ 5 12 Purchase 1 7 28 Purchase 1 9 Total 3 $21 Assume one unit is sold on October 31 for $15. Determine Cost of Merchandise Sold, Gross profit, and Ending Inventory under the FIFO method.

Answer 1

Answer:

Cost of merchandise  sold = $5

Closing inventory=$16

Gross profit =$20

Explanation:

Under the FIFO system , inventories are priced using the price of the oldest batch in the stock, after which the price of the next oldest batch and this is done in turn. It is based on the principle that the first batch that arrives the store should be issued first.

Using the FIFO method of the perpetual inventory, the 1 unit sold by the company will be priced as follows:

1 units at a price of $5 = 1× $5= $5

Cost of merchandise sold = $5

Closing inventory =  Total cost of golds in stock less the cost of goods sold

                         = 21 - 5= 16

Gross profit = Sales value - cost of goods sold

             = $15-$5= $20

Cost of merchandise  sold = $5

Closing inventory=$16

Gross profit =$20