A company sells 100 units in June. Calculate the cost of goods sold using first-in, first-out.
| | Units Received | Unit Cost |
|---|---|---|
| June 4 | 40 | $1.80 |
| June 11 | 70 | $1.50 |
| June 18 | 40 | $1.80 |
| June 25 | 50 | $1.70 |
$[?] per unit
Round to the nearest cent.
Answer (1)
Determine the units sold from each purchase date using FIFO: 40 units from June 4 and 60 units from June 11.
Calculate the cost for units from June 4: 40 × $1.80 = $72 .
Calculate the cost for units from June 11: 60 × $1.50 = $90 .
Sum the costs to find the total COGS: $72 + $90 = $162 , so the final answer is $1.62 .
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 need to determine the cost of these 100 units based on the provided purchase data.
Identifying Units Sold from Each Purchase Date The company sold 100 units. According to the FIFO method, we will account for the units sold from the earliest purchases first.
June 4: 40 units were received at $1.80 each.
June 11: 70 units were received at $1.50 each.
Since the company sold 100 units, we can see that all 40 units from June 4 were sold, and 60 units from June 11 were sold.
Calculating the Cost of Goods Sold Now, we calculate the cost of goods sold by multiplying the number of units from each purchase date by their respective unit costs and summing the results.
Cost of goods sold = (40 units * $1.80 ) + (60 units * $1.50 )
Let's calculate each part:
40 units * $1.80 = $72
60 units * $1.50 = $90
Determining the Total Cost of Goods Sold Now, we add these two amounts together to find the total cost of goods sold:
$72 + $90 = $162
Therefore, the cost of goods sold for the 100 units is $162 .
Final Answer The cost of goods sold for the 100 units sold in June, using the FIFO method, is $1.62 per unit.
Examples
Understanding the cost of goods sold (COGS) is crucial for businesses to accurately assess their profitability. For instance, a bakery uses FIFO to account for its ingredients. If they purchase flour at different prices throughout the month, FIFO helps them determine the cost of the flour used in the goods they sold, providing a more accurate picture of their profit margins. This method is also used in inventory management to ensure that older items are sold first, reducing the risk of spoilage or obsolescence.
