Consider the following facts: - Company A begin business operations in the month

Question

Consider the following facts:

- Company A begin business operations in the month of April.

- On April 1, it purchased 150 units of goods for $390.

- On April 10, it purchased 200 units of goods for $585.

- On April 15, it purchased 200 units of goods for $630.

- On April 28, it purchased 150 units of goods for $510.

- At the end of the month, it discovered that it had 200 units on hand after completing its physical inventory count.

- Company A uses the FIFO inventory accounting method.

Company A's cost of goods sold for April is:

a. $1,564

b. None of these answers are correct

c. $536

d. $668

e.$1,447

Explanation / Answer

When FIFO inventory accounting method is used, it is assumed that the inventory bought earliest is sold first.

At the end of the month 200 units are on hand, that means 500 units have been sold in April. 150 units from April 1 purchases, 200 units from April 10 purchases and 150 units from April 15 purchases.

Compute the cost of goods sold asa follows:

Gost of goods sold = $390 + $585 + ($630 x 150/200) = $1447.50

The correct answer is e.

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