A company sells 100 units in June. Calculate the cost of goods sold using first-in, first-out.
| | Units Received | Unit Cost |
|---|---|---|
| June 4 | 30 | $2.50 |
| June 11 | 60 | $2.00 |
| June 18 | 20 | $2.60 |
| June 25 | 50 | $2.10 |
$ \$\square$ ? per unit
Answer (1)
Determine the number of units sold from each receipt date based on the FIFO method.
Calculate the cost of goods sold from June 4: 30 × $2.50 = $75.00 .
Calculate the cost of goods sold from June 11: 60 × $2.00 = $120.00 .
Calculate the cost of goods sold from June 18: 10 × $2.60 = $26.00 . The total cost of goods sold is $221.00 .
Explanation
Understanding the Problem The problem requires us to calculate the cost of goods sold (COGS) for 100 units using the first-in, first-out (FIFO) method. FIFO means we sell the oldest inventory first. We need to consider the units received on different dates and their respective costs to determine the total cost of the 100 units sold.
Determining the Units Sold from Each Receipt First, we sell the 30 units received on June 4 at $2.50 each. Then, we sell the 60 units received on June 11 at $2.00 each. So far, we have sold 30 + 60 = 90 units. We need to sell 10 more units to reach the total of 100 units. These 10 units will come from the June 18 receipt at $2.60 each.
Calculating the Cost from Each Receipt Now, we calculate the cost of goods sold:
Cost from June 4 = 30 units × $2.50/unit = $75.00 Cost from June 11 = 60 units × $2.00/unit = $120.00 Cost from June 18 = 10 units × $2.60/unit = $26.00
Calculating the Total Cost of Goods Sold Finally, we sum the costs from each receipt to find the total cost of goods sold:
Total COGS = $75.00 + $120.00 + $26.00 = $221.00
Final Answer The cost of goods sold for the 100 units, using the FIFO method, is $221.00.
Examples
Understanding FIFO is crucial in business. Imagine a bakery that wants to calculate the cost of bread sold. They made bread on Monday (at a lower cost) and Tuesday (at a higher cost). If they sold 50 loaves, FIFO helps them calculate costs accurately by assuming they sold Monday's bread first. This method is also used to track inventory costs for tax purposes, providing a clear view of profitability and financial health.
