Question

Candance owns a small candy store that sells one type of candy. Her beginning inventory of candy was made up of 10,000 boxes costing $1.50 per box ($15,000), and she made the following purchases of candy during the year: March 1 10,000 boxes at $1.60 $16,000 August 15 20,000 boxes at $1.70 34,000 November 20 10,000 boxes at $1.80 18,000 At the end of the year, Candance’s inventory consisted of 15,000 boxes of candy. Her Sales for the year is $53,500. What is her cost of ending inventory of goods using the FIFO inventory valuation method?

Answer 1

$18,000

Explanation:

To calculate Candace's cost of ending inventory using the FIFO (First-In, First-Out) inventory valuation method, we need to assume that the first candies purchased are the first ones sold. Therefore, we calculate the cost of ending inventory by determining the cost of the most recently purchased candies that are still on hand.

Let's break down her inventory and purchases:

Beginning inventory:

10,000 boxes at $1.50 per box = $15,000

Purchases during the year:

March 1: 10,000 boxes at $1.60 per box = $16,000

August 15: 20,000 boxes at $1.70 per box = $34,000

November 20: 10,000 boxes at $1.80 per box = $18,000

Now, let's calculate the cost of ending inventory:

Calculate the cost of the most recent purchase (November 20):

10,000 boxes at $1.80 per box = $18,000

Calculate how many boxes from this purchase are still in ending inventory:

Since she had 15,000 boxes of candy in ending inventory, and the most recent purchase was 10,000 boxes, all of the 10,000 boxes from the November 20 purchase are still in ending inventory.

So, her cost of ending inventory using the FIFO method is $18,000.