11SE - Horngren'S Financial And Managerial Accounting

Question

Question: The periodic inventory records of Flexon Prosthetics indicate the following for the month of July:

Jul. 1 Beginning merchandise inventory 6 units @ \( 60 each

8 Purchase 5 units @ \) 67 each

15 Purchase 10 units @ \( 70 each

26 Purchase 5 units @ \) 85 each

 

At July 31, Flexon counts four units of merchandise inventory on hand.

 

Compute ending merchandise inventory and cost of goods sold for Flexon using theFIFO inventory costing method.

 

Step-by-Step Solution

Answer

Ending Inventory:$340

Cost of goods sold:$1,480

Step1: Computation on ending inventory under periodic inventory FIFO

In FIFO under periodic inventory, the cost of issued inventory is valued on the historical prices. So the ending inventory is always valued at the current prices.

So in the given case, the cost of ending inventory would be as follow –

$$\begin{gathered} Endinginevntoryvalue=Endinginventory\left(units\right)\times Costofpurchaseon26July \\ =4\times \$85 \\ =\$340 \end{gathered}$$

Step 2: Computation of cost of goods sold

$$\begin{gathered} Costofgoodssold=Openinginventory+TotalPurchase-Endinginventory \\ =6\times \$60+\left(5\times \$67+10\times \$70+5\times \$85\right)-\$340 \\ =\$360+\$1,460-\$340 \\ =\$1,480 \end{gathered}$$