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A company just starting business made the following four inventory purchases in June: On June 25, the company made its first sale when a local customer purchased 500 units for $3,500.The company uses a perpetual inventory system.
-Using the FIFO cost method, the amount of the cost of goods sold for June is
A)$645.
B)$695.
C)$1,650.
D)$1,700.

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A company just starting business made the following four inventory purchases in June:  On June 25, the company made its first sale when a local customer purchased 500 units for $3,500.The company uses a perpetual inventory system.
-Using the FIFO cost method, the amount of the cost of goods sold for June is
A)$645. 
B)$695. 
C)$1,650. 
D)$1,700.

Quizplus · Accepted Answer

Using the FIFO method, the cost of goods sold would be calculated by assuming that the first units purchased are also the first units sold. Therefore, the cost of goods sold would be calculated as follows:
- 200 units from June 1 purchase at $2 each = $400
- 100 units from June 5 purchase at $3 each = $300
- 100 units from June 15 purchase at $4 each = $400
- 100 units from June 20 purchase at $5 each = $500
Total cost of goods sold for June = $1,600
Since the company only made one sale for 500 units at $3,500, the cost of goods sold is less than the sales revenue. Therefore, the gross profit for June using the FIFO method would be $1,900 ($3,500 - $1,600) and the answer would be C ($1,650).

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