A company sells 100 units in June. Calculate the cost of goods sold using first-in, first-out.
| | Units Received | Unit Cost |
|---|---|---|
| June 4 | 30 | $2.50 |
| June 11 | 60 | $2.00 |
| June 18 | 20 | $2.60 |
| June 25 | 50 | $2.10 |
$[?] per unit
Round to the nearest cent.
Answer (2)
The Cost of Goods Sold (COGS) for the 100 units sold in June using the FIFO method is $221.00. This includes costs from different purchase dates, where the oldest units are accounted for first. The calculation involves summing the costs from each purchase date according to the FIFO principle.
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Determine the number of units sold from each purchase date using the FIFO method.
Calculate the cost of units sold from each purchase date: 30 × 2.50 = 75 , 60 × 2.00 = 120 , 10 × 2.60 = 26 .
Sum the costs from each date to find the total cost of goods sold: 75 + 120 + 26 = 221 .
The cost of goods sold for the 100 units is 221.00 .
Explanation
Understanding the Problem We are asked to calculate the cost of goods sold (COGS) for a company that sold 100 units in June, using the first-in, first-out (FIFO) method. The FIFO method assumes that the first units purchased are the first ones sold. We need to determine the cost of the 100 units sold based on the provided purchase data.
Determining Units from Each Purchase Date First, we use the units received on June 4, which are 30 units at $2.50 each. Then, we use the units received on June 11, which are 60 units at $2.00 each. So far, we have accounted for 30 + 60 = 90 units. We need 10 more units to reach the 100 units sold. These 10 units will come from the units received on June 18, which are 20 units at $2.60 each.
Calculating the Cost from Each Date Now, we calculate the cost of goods sold by summing the cost of units sold from each purchase date:
Cost from June 4: 30 units $\times$ 2.50/unit = $75.00 Cost from June 11: 60 units $\times$ 2.00/unit = $120.00 Cost from June 18: 10 units $\times$ 2.60/unit = $26.00
Calculating Total COGS Finally, we add up the costs from each date to find the total cost of goods sold:
COGS = $75.00 + $120.00 + $26.00 = $221.00
Final Answer Therefore, the cost of goods sold for the 100 units is $221.00.
Examples
Understanding the cost of goods sold (COGS) using FIFO is crucial for businesses to accurately report their financial performance. For example, a bakery uses FIFO to determine the cost of bread sold each day. They first account for the cost of the flour and ingredients purchased earliest, ensuring that their financial statements reflect the most accurate cost of goods sold. This method helps them in pricing their products and making informed business decisions.
