Use the following inventory information for the month of July to answer the below question. July 1 Beginning inventory 20 units at $19 $380 July 7 Purchases 70 units at $20 $1 400 July 22 Purchases 10 units at $22 $220 $2 000 A physical count of inventory on July 30 reveals that there are 35 units on hand. Using the FIFO inventory method, the amount allocated to cost of sales for July is: Group of answer choices $680 $720 $1 280 $1 320
Question
Use the following inventory information for the month of July to answer the below question.
July 1
Beginning inventory
20 units at $19
$380
July 7
Purchases
70 units at $20
$1 400
July 22
Purchases
10 units at $22
$220
$2 000
A physical count of inventory on July 30 reveals that there are 35 units on hand.
Using the FIFO inventory method, the amount allocated to cost of sales for July is:
Group of answer choices
$680
$720
$1 280
$1 320
Solution
Using the FIFO (First In, First Out) inventory method, the amount allocated to the cost of sales for July can be calculated as follows:
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According to FIFO, the first items purchased are the first ones to be sold.
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The total number of units available during July is the sum of the beginning inventory and the purchases, which is 20 units + 70 units + 10 units = 100 units.
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The physical count of inventory on July 30 reveals that there are 35 units on hand. This means 65 units (100 units - 35 units) were sold.
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The first 20 units sold would be from the beginning inventory, costing 19/unit = $380.
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The next 45 units sold (65 units - 20 units) would be from the July 7 purchase, costing 20/unit = $900.
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The total cost of sales is the sum of the cost of the units from the beginning inventory and the July 7 purchase, which is 900 = $1,280.
So, the amount allocated to the cost of sales for July using the FIFO method is $1,280.
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