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 I calculate cost of goods sold (COGS) using the first in, first out (FIFO) ...

    Learn how to use the first in, first out, or FIFO, method of cost flow assumption to calculate the cost of goods sold, or ...
  2. Why is it sometimes better to use an average inventory figure when calculating the ...

    For a couple of key reasons, average inventory can be a better and more accurate measure when calculating the inventory turnover ...
  3. What is the formula for calculating inventory turnover?

    Learn about the inventory turnover ratio, how it is calculated and what this efficiency metric tells businesses about their ...
  4. 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 ...
  5. 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 ...
  6. How do I calculate the inventory turnover ratio?

    The inventory turnover ratio is a key measure for evaluating how efficient management is at managing company inventory and ...
  1. Cost Of Goods Sold - COGS

    Cost of goods sold (COGS) are the direct costs attributable to ...
  2. Ending Inventory

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

    The average number of days it takes for a firm to sell to consumers ...
  4. Perpetual Inventory

    A method of accounting for inventory that records the sale or ...
  5. LIFO Liquidation

    When a company using the LIFO (Last In, First Out) method of ...
  6. Average Cost Flow Assumption

    A calculation used by companies to monitor inventory goods. The ...
Trading Center