Shown below is the activity for one of the products of Random Creations:
January 1 balance, 92 units @ $65 $5,980
Purchases:
January 18: 52 units @ $65
January 28: 52 units @ $66
Sales:
January 12: 42 units
January 22: 42 units
January 31: 57 units
Required:
Compute the January 31 ending inventory and cost of goods sold for January, assuming Random Creations uses FIFO.
To calculate the ending inventory and cost of goods sold using the FIFO method, we need to assume that the oldest units are sold first.
January 1 balance: 92 units @ $65 = $5,980
Purchases:
January 18: 52 units @ $65 = $3,380
January 28: 52 units @ $66 = $3,432
Total units available for sale: 92 + 52 + 52 = 196 units
Sales:
January 12: 42 units
January 22: 42 units
Total units sold: 42 + 42 = 84 units
Calculating the ending inventory:
With FIFO, we assume that the units purchased first are the ones sold first. Therefore, we deduct the first 84 units (42 + 42) from the purchases and the beginning inventory.
Remaining units in January 18 purchase: 52 units - 42 units = 10 units
Remaining units in January 28 purchase: 52 units
Remaining units in January 1 balance: 92 units - 10 units = 82 units
Therefore, the ending inventory on January 31 will be: 10 units from January 18 purchase + 52 units from January 28 purchase + 82 units from January 1 balance = 144 units.
Calculating the cost of goods sold:
The cost of the goods sold is calculated by multiplying the number of units sold by their respective costs. Since the oldest units are sold first, we need to calculate the cost for the units from the January 1 balance first, followed by the January 18 and January 28 purchases.
Cost of units sold from January 1 balance: 42 units x $65 = $2,730
Cost of units sold from January 18 purchase: 42 units x $65 = $2,730
Cost of units sold from January 22 purchase: 57 units x $66 = $3,762
Total cost of goods sold for January: $2,730 + $2,730 + $3,762 = $9,222
Therefore, the ending inventory on January 31 is 144 units, and the cost of goods sold for January is $9,222.