A company starts the year with five widgets in its inventory. In order of purchase, two units were bought at $700 each, one unit was bought for $600, and the remaining two units were bought for $750 a piece. Throughout the year, the firm first purchased three units at $800 each and another four units at $825 each. By year end, the firm had sold eight units at $1,000 a piece. The actual units sold included all those from the beginning inventory and the initial three units bought during the year. Which of the following results would be true through the use of the FIFO method?
A) Ending inventory equals $2,750.
B) Profit equals $3,050.
C) Cost of goods sold equals $5,900.
D) Profit equals $1,550.
The correct answer is: C)
Sales (8 units @ $1,000)   $8,000
Cost of Goods Sold (COGS):    
  1. Beginning Inventory:    
    2 @ 700 = 1,400    
    1 @ 600 = 600    
    2 @ 750 = 1,500 $3,500  
  2. Purchases:    
    3 @ 800 = 2,400    
    4 @ 825 = 3,300 $5,700  
  3. Ending Inventory (4 units)    
    4 @ 825 = $3,300  
COGS   $5,900
PROFIT   $2,100


  1. How do you analyze inventory on the balance sheet?

    Learn how to analyze inventory using financial statements and footnotes by doing ratio analysis and performing qualitative ...
  2. Why should investors care about the Days Sales of Inventory (DSI)?

    Learn about days sales of inventory and what it measures; understand why an investor would want to know a company's days ...
  3. What does inventory turnover tell an investor about a company?

    Find out more about the inventory turnover ratio, what the ratio measures and what the inventory turnover ratio indicates ...
  4. What are some examples of industries that cannot claim cost of goods sold (COGS)?

    Discover which types of businesses are not allowed to list cost of goods sold on their income statement or claim their COGS ...
  5. How do you find a company's days sales of inventory (DSI)?

    Discover the formula to calculate days sales of inventory and how it is helpful to market analysts and investors, but it ...
  6. How is the economic order quantity model used in inventory management?

    Understand what types of costs make up total inventory costs, and learn how the economic order quantity model is used to ...
  1. Ending Inventory

    The value of goods available for sale at the end of the accounting ...
  2. Average Age Of Inventory

    The average number of days it takes for a firm to sell to consumers ...
  3. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors ...
  4. Average Inventory

    A calculation comparing the value or number of a particular good ...
  5. LIFO Liquidation

    When a company using the LIFO (Last In, First Out) method of ...
  6. Highest In, First Out - HIFO

    In accounting, an inventory distribution method in which the ...
Trading Center