Question

Adam Company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, the cost of ending inventory will be:

Answer 1

Answer:

The value of the ending inventory is $ 640

Explanation:

First we have to make a table showing the inventory movements.

Beginning inventory                            100 units                         $    300

Purchases                                             900 units                        $ 2,880

Ending inventory                                   200 units

Adam Company uses the FIFO method which means that the units sold shall be valued at the opening inventory plus purchases. The ending inventory shall be priced at the purchase value.

The unit value for purchases is $ 2,880/900 = $ 3.20 per unit.

So the value of the ending inventory shall be

200 units * $ 3.2 per unit   = $ 640

Answer 2

Answer:

ending inventory = $620

Explanation:

beginning inventory        100 units           $300          $3 per unit

purchases                        900 units         $2,880        $3.20 per unit

ending inventory             200 units               ???               ???

Under FIFO method (first in, first out), the first units purchased (oldest) are the first units to be sold.

Since the ending inventory = 200 units and using the FIFO method:

• 100 units x $3 per unit = $300
• 100 units x $3.20 per unit = $320

ending inventory = $300 + $320 = $620