Calculate Ending Inventory and Cost of Goods Sold in 2024
What are the inventory purchase transactions for the company in 2024?
The company sells 260 units of inventory for $90 each and has the following purchase transactions:
- Purchase 1: 150 units at $85 each
- Purchase 2: 200 units at $88 each
- Purchase 3: 100 units at $92 each
- Purchase 4: 300 units at $95 each
Calculate the ending inventory and cost of goods sold for 2024 using the FIFO method.
Ending Inventory and Cost of Goods Sold Calculation Using FIFO Method
The company sold 260 units at $90 each. We will use the FIFO (First-In, First-Out) method to calculate the ending inventory and cost of goods sold based on the given information:
1. Calculate Cost of Goods Sold (COGS):
- COGS for units sold from Purchase 1: 150 units * $85 = $12,750
- COGS for units sold from Purchase 2: 110 units * $88 = $9,680
Total COGS: $12,750 + $9,680 = $22,430
2. Calculate Ending Inventory:
- Ending inventory consists of remaining units from Purchase 2, Purchase 3, and Purchase 4.
- Ending Inventory = (90 units from Purchase 2) + 100 units from Purchase 3 + 300 units from Purchase 4 = 490 units
The FIFO method ensures that the oldest inventory items are sold first, reflecting the actual flow of goods. By using FIFO, the company can accurately track the cost of goods sold and ending inventory. In this case, the ending inventory for 2024 using the FIFO method is 490 units, while the cost of goods sold amounts to $22,430.
Understanding different inventory costing methods like FIFO can help businesses make informed decisions about pricing, production, and inventory management. It ensures accurate financial reporting and inventory valuation.
By following FIFO, companies can maintain consistency in their inventory accounting practices and make strategic decisions based on cost flow assumptions. Calculating ending inventory and cost of goods sold is crucial for financial analysis and performance evaluation.