The Divine Merchandising Corporation began March operations with merchandise inv

Question

The Divine Merchandising Corporation began March operations with merchandise inventory of 6 units, each of which cost $27. During March, Divine Merchandising made the following purchases: (1) March 4, 12 units @ $28 per unit, (2) March 15, 18 units @ $30 per unit, (3) March 26, 14 units @ $32 per unit. During March the Divine Merchandising Company sold the following units at a sales price of $48 per unit: March 6, 11 units, March 20, 17 units, and March 28, 12 units. Operating expenses in March were $640. The Company estimates its income taxes expense will be approximately 35% of income before taxes.

Using the FIFO inventory method, determine the inventory dollar amount on March 1.

$288

$162

$180

$192

$168

$288

$162

$180

$192

$168

Explanation / Answer

Here is the solution-

There is Opening Stock =6 units @$27 each so value of inventory will be =27*6=$162

Calculation of value on 31st March

Opening Stock =6 units @$27 each

unit bought=

(1) March 4, 12 units @ $28 per unit,

(2) March 15, 18 units @ $30 per unit,

(3) March 26, 14 units @ $32 per unit

Total =44 units

Unit sold_

March 6, 11 units,

March 20, 17 units, and

March 28, 12 units.

Total =40 units

Ending stock =Opening stock+purchased-Sold

=6+44-40=10 units

in FIFO,old stock issued first.in this case 10 units must belong to March 26, 14 units @ $32 per unit lot.

Value of stock=10*32=$320

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