Lawrence owns a small candy store that sells one type of candy. His beginning in

Question

Lawrence owns a small candy store that sells one type of candy. His beginning inventory of candy was made up of 10,000 boxes costing $1.50 per box ($15,000), and he made the following purchases of candy during the year: March 1 10,000 boxes at $1.60 $16,000 August 15 20,000 boxes at $1.60 32,000 November 20 10,000 boxes at $1.75 17,500 At the end of the year, Lawrence's inventory consisted of 15,000 boxes of candy. A. Calculate Lawrence's ending inventory and cost of goods sold using the FIFO inventory valuation method. Ending inventory Cost of goods sold B. Ending inventory Cost of goods sold

Explanation / Answer

Ok first of all you want the ending inventory using FIFO which is first in first out, this means that the candy you bought or had in the beginning would go first when someone makes a purchase. Therefore, the 15000 boxes would be from the very last candy you purchased. You last purchased 10000 boxes at 1.75 so you need another 5000 boxes. This would come from the 20000 boxes at 1.60.

You have 10000 @ 1.75 = 17500
And 5000 @ 1.60 = 8,000
Total ending inventory = 25,500

Now figure the cost of goods sold. Since you only had 15000 boxes left this means you sold everything else including your original beginning inventory.
10000 @ 1.50 = 15000
10000 @ 1.60 = 16000
15000 @ 1.60 = 24000 - this is the difference from your purchase of 20000 and the ending inventory of 5000.
Total Cost of Goods Sold = 55000

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