A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, it purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO periodic inventory method, what is the cost of the 12 units that were sold?
A) $120.
B) $124.
C) $128.
D) $130.
E) $140.

Question

Quizplus · Accepted Answer

FIFO (First-In, First-Out) method assumes that the first inventory items purchased are the first ones sold.

On June 5, the company sold 12 units, so we need to determine which units were sold by using FIFO method.

Out of the 10 units purchased on June 1, none were sold, so we have 10 units left in inventory.

Out of the 20 units purchased on June 3, we assume that the first 10 units were sold since they were the oldest in inventory. This leaves us with 10 units at $12 each and a total cost of $120.

Therefore, the cost of 12 units sold is 10 units at $10 each (remaining from June 1) plus 2 units at $12 each (the oldest of June 3 purchases) which gives us a total cost of $100 + $24 = $124. Choices A, C, D, and E can be eliminated as they do not match this calculation.

A Company Has Inventory of 10 Units at a Cost