Question

West Co. recorded the following inventory information during the month of February:

Units Unit cost Total cost Units on hand
Balance on 2/1 800 $2 $1,600 800
Purchased on 2/8 1,000 3 3,000 1,800
Sold on 2/14 1,500 300
Purchased on 2/17 2,000 1 2,000 2,300
Sold on 2/23 1,600 700
Purchased on 2/28 800 4 3,200 1,500
West uses the FIFO method to cost inventory. What amount should West report as cost of goods sold at the end of February under each of the following methods of recording inventory?

Perpetual Periodic

A.
$3,900 $3,900

B.
$3,900 $5,900

C.
$5,900 $3,900

D.
$5,900 $5,900

Answer 1

The correct option is C. The valuation of the cost of goods sold which is recorded in its book as $5,900 and stock available for sale is $3,900  under the FIFO method.

Why is the FIFO method used for Inventory Valuation?

FIFO will enable you to claim a higher average cost-per-piece on newer inventory, which can help you save money on taxes if your inventory costs are declining over time. Because it assumes that older products are no longer in use, FIFO does not necessitate as much documentation as LIFO.

Calculation Cost of Goods Sold (COGS) under FIFO Method:

COGS = 800 x 2 + 700 x 3 + 300 x 3 + 1300 x 1 =

COGS = $5,900

The calculation for Stock available for Sale:

Stock available for Sale = 700 x 1 + 800 x 4

Stock available for Sale = $3,900

Thus, the Cost of Goods Sold is $5,900, and the stock available for sale is $3,900  under the FIFO method.

Learn more about FIFO here:

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