Question

Assume Oakland.net began November with 16 units of inventory that cost a total of KD 256.

During the month of November Oakland purchased and sold goods as follows:

November 8: Purchase of 48 units @ KD 17 each

November 14: Sale of 40 units @ KD 34 each

November 22: Purchase of 32 units @ KD 19 each

November 27: Sale of 48 units @ $34 each

Under the FIFO inventory costing method and the perpetual inventory​ system, how much is

Oakland​'s cost of goods sold for the sale on November 27?

Select one:

a. KD 912

b. KD 768

c. KD 816

d. KD 864

Answer 1

The cost of goods sold (COGS),

It is also referred to as the cost of sales or cost of services, is how much it costs to produce your products or services. COGS include direct material and direct labor expenses that go into the production of each good or service that is sold.COGS does not include indirect expenses, like certain overhead costs. Do not factor things like utilities, marketing expenses, or shipping fees into the cost of goods sold.

COGS = Beginning Inventory + Purchases During the Period – Ending Inventory

Under the perpetual system of Inventory

It is that account which constantly (or perpetually) changing. When a retailer purchases merchandise, the retailer debits its Inventory account for the cost; when the retailer sells the merchandise to its customers its Inventory account is credited and its Cost of Goods Sold account is debited for the cost of the goods sold. Rather than staying dormant as it does with the periodic method, the Inventory account balance is continuously updated.

With perpetual FIFO, the first (or oldest) costs are the first moved from the Inventory account and debited to the Cost of Goods Sold account. The end result under perpetual FIFO is the same as under periodic FIFO. In other words, the first costs are the same whether it is moved out the cost out of inventory with each sale (perpetual) or whether the wait is until the year is over (periodic).

Workings:-

Computation of Inventory under Periodic FIFO costing
		Purchases	Sales	Balance
Date	Activity	Units	Unit cost	Total cost	Units	Unit cost	Total cost	Units	Unit cost	Total cost
November 1	Beginning inventory			0			0	16	16	256
November 8	Purchases	48	17	816			0	16	16	256
								48	17	816
November 14	Sales				16	16	256
					24	17	408
							664	24	17	408
November 22	Purchases	32	19	608			0	24	17	408
								32	19	608
November 27	Sales				24	17	408
					24	19	456
							864	8	19	152

Option d - KD 864 is correct, it is the cost o goods sold value on sale on November 27th., other options are incorrect.