Castle TV, Inc. purchased 3,000 monitors on January 5 at a per-unit cost of $238

Question

Castle TV, Inc. purchased 3,000 monitors on January 5 at a per-unit cost of $238, and another 3,000 units on January 31 at a per-unit cost of $310. In the period from February 1 through year-end, the company sold 5,450 units of this product. At year-end, 550 units remained in inventory.

Assume that Castle TV, Inc. uses the FIFO flow assumption. The cost of the 550 units in inventory at year-end is:

Assume that Castle TV, Inc. uses the FIFO flow assumption. The cost of the 550 units in inventory at year-end is:

Explanation / Answer

Under the FIFO flow assumption, the invetory purchased first is sold first. Therefore, 3,000 monitors purchased on January 5 will be sold first and then the monitors purchased on January 31 will be sold.

The 550 units remained in inventory at the year-end will contain the monitors purchased on January 31 at a per unit cost of $310.

Thus, the cost of 550 units in inventory at year end = 550 x $310 = $170,500

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