Question

In: Accounting

The FIFO inventory method requires that a. the cost of the first items purchased be assigned...

The FIFO inventory method requires that a. the cost of the first items purchased be assigned to cost of goods sold. b. the cost of the last items purchased be assigned to cost of goods sold. c. the earliest goods purchased be allocated to ending inventory. d. the company uses a perpetual inventory system.

Solutions

Expert Solution

The FIFO inventory method requires that

Answer : a. the cost of the first items purchased be assigned to cost of goods sold.

Explanation

Under first-in, first-out (FIFO) method, the costs are chronologically charged to cost of goods sold (COGS) i.e., the first costs incurred are first costs charged to cost of goods sold (COGS).

For example If we have purchased 100 units of Goods @ $ 25 per unit on 1st April 2018 and 200 units of Goods @ $30 per unit on 5th April and out of which 150 units are issued to Production Department 10th April 2018 for Manufacture of Finished Goods than

For Valuation of 150 unit of Goods issued to Production department on 10th April 2018

first 100 units will be valued at => 100* 25 = $ 2500

And Balance 50 units will valued at => 50 * 30 = $1500

So total Value of goods issuued to Production Deptt. on 10th April 2018 = 2500+1500 =$4000 under FIFO (First in First out method)

ekkarill92 answered 1 year ago
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