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 |
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Answer (1)
Determine the number of units from each purchase date included in the 100 units sold using FIFO.
Calculate the cost for each purchase date: ( 60 × 2.20 ) , ( 20 × 2.90 ) , and ( 20 × 2.30 ) .
Sum the costs to find the total cost of goods sold: 132 + 58 + 46 = 236 .
The cost of goods sold is 236 .
Explanation
Understanding the Problem We are given the number of units sold in June (100) and a table of units received on different dates with their respective unit costs. We need to calculate the cost of goods sold (COGS) using the first-in, first-out (FIFO) method. FIFO means that the first units purchased are assumed to be the first units sold.
Applying the FIFO Method According to the FIFO method, we will use the units received on June 4 first, then June 11, and so on, until we account for all 100 units sold.
Determining Units from Each Date
June 4: We have 60 units at $2.20 each.
June 11: We have 20 units at $2.90 each.
June 18: We need 20 more units to reach the 100 units sold. We have 40 units at $2.30 each, so we take 20 units from this batch.
Calculating the Cost of Goods Sold Now, we calculate the cost of goods sold by multiplying the number of units from each date by their respective costs and summing the results:
Cost of goods sold = ( 60 × 2.20 ) + ( 20 × 2.90 ) + ( 20 × 2.30 )
Performing the Calculation Let's calculate each term:
60 × 2.20 = 132 20 × 2.90 = 58 20 × 2.30 = 46
Now, sum these values:
132 + 58 + 46 = 236
Final Answer Therefore, the cost of goods sold for the 100 units is $236 .
Examples
Understanding the cost of goods sold using FIFO is crucial for businesses to accurately report their financial performance. For example, a bakery uses FIFO to determine the cost of bread sold each day. By tracking the cost of the oldest ingredients first, they can better manage their inventory and pricing strategies, ensuring profitability and minimizing waste. This method helps in matching the cost of goods with the revenue generated in the same period, providing a clear picture of the business's financial health.
