A company sells 100 units in June. Calculate the cost of goods sold using first-in, first-out.
| | Units Received | Unit Cost |
|---|---|---|
| June 4 | 70 | $2.00 |
| June 11 | 30 | $3.00 |
| June 18 | 60 | $2.10 |
| June 25 | 40 | $2.40 |
$[ ? ] per unit. Round to the nearest cent.
Answer (2)
The first 70 units sold are from June 4 at $2.00 each, totaling $140.00.
The next 30 units sold are from June 11 at $3.00 each, totaling $90.00.
The total cost of goods sold is $140.00 + $90.00 = $230.00.
The cost per unit is $\frac{230.00}{100} = $2.30, so the answer is 2.30
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. FIFO means we assume the first units purchased are the first ones sold. We have the following purchases:
June 4: 70 units at $2.00/unit
June 11: 30 units at $3.00/unit
June 18: 60 units at $2.10/unit
June 25: 40 units at $2.40/unit
Identifying the Relevant Purchases Since the company sold 100 units, we need to account for the cost of these 100 units based on the FIFO method. The first 70 units are from the June 4 purchase, and the next 30 units are from the June 11 purchase.
Calculating Cost from June 4 The cost of the 70 units from June 4 is: 70 × $2.00 = $140.00
Calculating Cost from June 11 The cost of the 30 units from June 11 is: 30 × $3.00 = $90.00
Calculating Total COGS The total cost of goods sold is the sum of these costs: $140.00 + $90.00 = $230.00
Calculating Cost Per Unit To find the cost per unit, we divide the total cost by the number of units sold: 100 $230.00 = $2.30
Final Answer Therefore, the cost of goods sold per unit is $2.30.
Examples
Understanding the cost of goods sold 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 assume the loaves baked first are sold first, helping them manage inventory and calculate profits accurately. This method is also used in larger retail settings, such as clothing stores, to track the cost of items sold and ensure proper financial reporting.
The cost of goods sold per unit using the FIFO method is $2.30, calculated by summing the costs of the first 100 units sold from the available inventory. This includes 70 units at $2.00 from June 4 and 30 units at $3.00 from June 11. The total cost comes to $230.00, resulting in a per unit cost of $2.30.
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