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 ending inventory 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 ending inventory 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 ending inventory 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. So, we start with the first purchase made on July 1 of 20 units for $19 each.
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The physical count of inventory on July 30 reveals that there are 35 units on hand. This means 35 units were not sold and are still in the inventory.
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Subtract the 20 units purchased on July 1 from the 35 units on hand. This leaves 15 units that must have come from the next purchase on July 7.
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The cost per unit for the July 7 purchase is $20 per unit.
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Multiply the remaining 15 units by the cost per unit from the July 7 purchase: 15 units * 300.
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Add the cost of the units from the July 1 purchase (300).
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The total cost of the ending inventory on July 30 is 300 = $680.
So, the amount allocated to ending inventory for July using the FIFO method is $680.
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