A company sells 100 units in June. Calculate the cost of goods sold using first-in, first-out.
| | Units Received | Unit Cost |
|---|---|---|
| June 4 | 70 | $2.00 |
| June 11 | 30 | $3.00 |
| June 18 | 60 | $2.10 |
| June 25 | 40 | $2.40 |
$ per unit
Answer (1)
The first 70 units are from June 4 at $2.00 each.
The next 30 units are from June 11 at $3.00 each.
Calculate the cost: ( 70 × $2.00 ) + ( 30 × $3.00 ) .
The total cost of goods sold is $230.00 .
Explanation
Understanding the Problem The company sold 100 units and uses the FIFO (First-In, First-Out) method to determine the cost of goods sold. This means we need to account for the cost of the first units that came in.
Identifying the Costs The first 70 units sold came from the June 4 purchase, which cost $2.00 per unit. The next 30 units sold came from the June 11 purchase, which cost $3.00 per unit.
Calculating the Costs To calculate the total cost of goods sold, we multiply the number of units from each purchase by their respective costs and then add them together. The cost of the first 70 units is 70 × $2.00 = $140.00 . The cost of the next 30 units is 30 × $3.00 = $90.00 .
Total Cost of Goods Sold Adding these costs together gives us the total cost of goods sold: $140.00 + $90.00 = $230.00 .
Final Answer Therefore, the cost of goods sold for the 100 units is $230.00 .
Examples
Understanding the cost of goods sold (COGS) is crucial for businesses to accurately assess their profitability and manage their inventory. For example, a bakery uses the FIFO method to account for its flour. If they bought flour at different prices throughout the month, FIFO helps them determine the cost of the flour used in the goods they sold, ensuring accurate financial reporting and pricing strategies. This method is also applicable in other scenarios like managing stock in a retail store or tracking raw materials in a manufacturing plant, providing a clear view of inventory costs and supporting informed decision-making.
