Neighborly Industries has the following inventory information. Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a FIFO basis?
A) $10,992
B) $11,022
C) $23,088
D) $23,118

Question

Neighborly Industries has the following inventory information.  Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a FIFO basis?
A) $10,992 
B) $11,022 
C) $23,088 
D) $23,118

Quizplus · Accepted Answer

The inventory information shows that Neighborly Industries purchased 600 units at $21 per unit and 400 units at $22 per unit. To allocate the cost of goods sold and ending inventory on a FIFO basis, we assume that the first units purchased are the first units sold. Therefore, we first allocate the cost of goods sold for the 500 units sold in June as follows: 400 units at $21 per unit and 100 units at $22 per unit, for a total cost of $10,900. The cost of the remaining inventory (500 units) is allocated to ending inventory on a FIFO basis. Using the same method, we allocate the cost of the 300 units sold in July as follows: 100 units at $21 per unit and 200 units at $22 per unit, for a total cost of $6,700. The cost of the remaining inventory (200 units) is allocated to ending inventory on a FIFO basis. The cost per unit of the remaining 200 units is $22 per unit, which gives us an ending inventory value of $4,400 (200 units x $22 per unit). Therefore, the amount allocated to ending inventory on a FIFO basis is $11,022 ($6,700 + $4,400).

Neighborly Industries Has the Following Inventory Information