Mulligan Imports decides to use the FIFO method for the month of January. During that month, it records the following transactions:
|
Quantity Change |
Actual Unit Cost |
Actual Total Cost |
|
|
Beginning inventory (Layer 1) |
+100 |
$210 |
$21,000 |
|
Sale |
-75 |
||
|
Purchase (Layer 2) |
+150 |
280 |
42,000 |
|
Sale |
-100 |
||
|
Purchase (Layer 3) |
+50 |
300 |
15,000 |
|
Ending inventory |
=125 |
The cost of goods sold in units is calculated as:
100 Beginning inventory + 200 Purchased – 125 Ending inventory = 175 Units
Mulligan’s cost accountant uses the information in the preceding table to calculate the cost of goods sold for January, as well as the cost of the inventory balance as of the end of January.
|
Units |
Units Cost |
Total Cost |
|
|
Cost of goods sold |
|||
|
FIFO layer 1 |
100 |
$210 |
$21,000 |
|
FIFO layer 2 |
75 |
280 |
21,000 |
|
Total cost of goods sold |
175 |
$42,000 |
|
|
Ending inventory |
|||
|
FIFO layer 2 |
75 |
280 |
$21,000 |
|
FIFO layer 3 |
50 |
300 |
15,000 |
|
Total ending inventory |
125 |
$36,000 |
Thus, the first FIFO layer, which was the beginning inventory layer, is completely used up during the month, as well as half of Layer 2, leaving half of Layer 2 and all of Layer 3 to be the sole components of the ending inventory.
Note that the $42,000 cost of goods sold and $36,000 ending inventory equals the $78,000 combined total of beginning inventory and purchases during the month.