Grays Company has the following purchases and sales during the month of August. Using the FIFO perpetual inventory method, what amount will be reported as cost of goods sold for the 12 units that were sold? Date Activities Units Acquired at Cost Units Sold at RetailAugust 1 Beginning inventory 10 units @ $44 = $440 August 3 Purchase 20 units @ $46 = $920 August 6 Sales 12 units soldMultiple Choice$502.$504.$532.$548.$460.
Question
Grays Company has the following purchases and sales during the month of August. Using the FIFO perpetual inventory method, what amount will be reported as cost of goods sold for the 12 units that were sold? Date Activities Units Acquired at Cost Units Sold at RetailAugust 1 Beginning inventory 10 units @ 440 August 3 Purchase 20 units @ 920 August 6 Sales 12 units soldMultiple Choice504.548.$460.
Solution
Under the FIFO (First-In, First-Out) perpetual inventory method, the first units purchased are the first ones to be sold.
Here's how to calculate the cost of goods sold:
- From the beginning inventory on August 1, sell 10 units at 440.
- Since you still need to account for 2 more units sold (12 units sold - 10 units from beginning inventory), you take 2 units from the August 3 purchase. These 2 units cost 92.
- Add these amounts together to get the total cost of goods sold. 92 (from step 2) = $532.
So, the cost of goods sold for the 12 units will be reported as $532.
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