A company sells 100 units in June. Calculate the cost of goods sold using first-in, first-out.
| | Units Received | Unit Cost |
|---|---|---|
| June 4 | 60 | $2.20 |
| June 11 | 20 | $2.90 |
| June 18 | 40 | $2.30 |
| June 25 | 60 | $2.20 |
$[?]$ per unit. Round to the nearest cent.
Answer (2)
Determine the number of units sold from each purchase date using the FIFO method.
Calculate the cost for each set of units: (60 units \times $2.20), (20 units \times $2.90), and (20 units \times $2.30).
Sum the costs to find the total COGS: $132 + $58 + $46 = $236.
The cost of goods sold is 236 .
Explanation
Understanding the Problem We are asked to calculate the cost of goods sold (COGS) for a company that sold 100 units in June, using the first-in, first-out (FIFO) method. The FIFO method assumes that the first units purchased are the first ones sold. We are given a table with the units received and their unit costs on different dates in June.
Applying the FIFO Method According to the FIFO method, we first sell the units received on June 4, then June 11, then June 18, and so on, until we have accounted for all 100 units sold.
Determining Units Sold from Each Purchase Date
June 4: We sell all 60 units received on June 4 at a cost of $2.20 per unit.
June 11: We sell all 20 units received on June 11 at a cost of $2.90 per unit.
June 18: We need to sell an additional 100 - 60 - 20 = 20 units. So, we sell 20 units from the June 18 purchase at a cost of $2.30 per unit.
Calculating the Total Cost of Goods Sold Now, we calculate the total cost of goods sold by multiplying the number of units sold from each purchase date by the corresponding unit cost and summing the results:
COGS = (60 units \times $2.20/unit) + (20 units \times $2.90/unit) + (20 units \times $2.30/unit)
COGS = $132 + $58 + $46
COGS = $236
Final Answer The cost of goods sold for the 100 units is $236.
Examples
Understanding the cost of goods sold (COGS) using the FIFO method is crucial for businesses to accurately report their financial performance. For example, a bakery uses FIFO to track the cost of ingredients like flour and sugar. By knowing the cost of goods sold, the bakery can determine its gross profit margin, which helps in pricing decisions and overall financial planning. This method ensures that the cost of the oldest inventory is matched with the revenue, providing a clear picture of profitability.
Using the FIFO method, the cost of goods sold for the 100 units sold in June is $236. This total is derived by calculating the costs from the earliest purchases first until reaching the total units sold. The breakdown includes costs from units received on June 4, June 11, and June 18.
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