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During the year, Wright Company sells 440 remote-control airplanes for $110 each. The company has the following inventory purchase transactions for the year. Date Transaction Number of Units Unit Cost Total CostJanuary 1 Beginning inventory 60 $76 $4,560May 5 Purchase 220 79 17,380November 3 Purchase 170 84 14,280    450   $36,220 Calculate ending inventory and cost of goods sold for the year, assuming the company uses FIFO.

Question

During the year, Wright Company sells 440 remote-control airplanes for 110each.Thecompanyhasthefollowinginventorypurchasetransactionsfortheyear. DateTransactionNumberofUnitsUnitCostTotalCostJanuary1Beginninginventory60110 each. The company has the following inventory purchase transactions for the year. Date Transaction Number of Units Unit Cost Total CostJanuary 1 Beginning inventory 60 76 4,560May5Purchase2207917,380November3Purchase1708414,280  450 4,560May 5 Purchase 220 79 17,380November 3 Purchase 170 84 14,280    450   36,220 Calculate ending inventory and cost of goods sold for the year, assuming the company uses FIFO.

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Solution

To calculate the ending inventory and cost of goods sold (COGS) under the FIFO (First-In, First-Out) method, we need to track the inventory in the order it was received.

  1. Calculate the total sales revenue: Wright Company sold 440 remote-control airplanes at 110each,sothetotalsalesrevenueis440∗110 each, so the total sales revenue is 440 * 110 = $48,400.

  2. Calculate the Cost of Goods Sold (COGS): Under FIFO, the first goods purchased are the first ones sold. So, the COGS will be the cost of the first 440 units sold.

    • From the beginning inventory: 60 units at 76each=76 each = 4,560
    • From the May 5 purchase: 220 units at 79each=79 each = 17,380
    • From the November 3 purchase: We need 160 more units to reach 440 (440 - 60 - 220 = 160). These 160 units cost 84each,so160∗84 each, so 160 * 84 = $13,440.

    Add these amounts together to get the COGS: 4,560+4,560 + 17,380 + 13,440=13,440 = 35,380.

  3. Calculate the Ending Inventory: The ending inventory is the cost of the goods that were not sold. There are 10 units left from the November 3 purchase (170 - 160 = 10). These 10 units cost 84each,sotheendinginventoryis10∗84 each, so the ending inventory is 10 * 84 = $840.

So, under the FIFO method, the Cost of Goods Sold for the year is 35,380andtheendinginventoryis35,380 and the ending inventory is 840.

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