A company sells 100 units in June. Calculate the cost of goods sold using first-in, first-out.
| | Units Received | Unit Cost |
| :----- | :------------- | :-------- |
| June 4 | 60 | $2.20 |
| June 11| 20 | $2.90 |
| June 18| 40 | $2.30 |
| June 25| 60 | $2.20 |
$[?] per unit
Answer (2)
Calculate the cost of the first 60 units from June 4: 60 × $2.20 = $132.00 .
Calculate the cost of the next 20 units from June 11: 20 × $2.90 = $58.00 .
Calculate the cost of the remaining 20 units from June 18: 20 × $2.30 = $46.00 .
Sum the costs to find the total cost of goods sold: $132.00 + $58.00 + $46.00 = $236.00 .
Explanation
Understanding the Problem We need to calculate the cost of goods sold (COGS) for 100 units using the FIFO (First-In, First-Out) method. This means we assume the first units purchased are the first ones sold. We will calculate the cost based on the provided table of units received and their costs.
Calculating Cost for June 4 Units First, we sell the 60 units received on June 4 at $2.20 each. The cost for these units is: 60 × 2.20 = 132.00
Calculating Cost for June 11 Units Next, we sell the 20 units received on June 11 at $2.90 each. The cost for these units is: 20 × 2.90 = 58.00
Determining Remaining Units to Account For So far, we have sold 60 + 20 = 80 units. We need to sell 100 − 80 = 20 more units. These will come from the units received on June 18.
Calculating Cost for June 18 Units We sell 20 units from June 18 at $2.30 each. The cost for these units is: 20 × 2.30 = 46.00
Calculating Total Cost of Goods Sold The total cost of goods sold is the sum of the costs for the units from June 4, June 11, and June 18: 132.00 + 58.00 + 46.00 = 236.00
Final Answer Therefore, the cost of goods sold for the 100 units is $236.00 .
Examples
Understanding the cost of goods sold using FIFO is crucial for businesses to accurately report their financial performance. For example, a bakery uses FIFO to determine the cost of bread sold each day. By tracking the cost of the earliest batch of flour and ingredients, they can calculate the cost of goods sold and determine their profit margin. This method helps them manage inventory and make informed pricing decisions.
The total cost of goods sold for the 100 units using the FIFO method is $236.00. This includes costs from units received on June 4, June 11, and June 18. Each unit is tracked in the order they were received, ensuring accurate financial reporting.
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