If a company has 100 units at $20 and 200 units at $25, and sells 150 units usin

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Question: If a company has 100 units at $20 and 200 units at $25, and sells 150 units using FIFO, what is the cost of goods sold?

Options:

Correct Answer: $3,250

Solution:

Under FIFO, the cost of goods sold for the first 150 units sold is (100 * $20) + (50 * $25) = $2,000 + $1,250 = $3,250.

If a company has 100 units at $20 and 200 units at $25, and sells 150 units using FIFO, what is the cost of goods sold?

If a company has 100 units at $20 and 200 units at $25, and sells 150 units using FIFO, what is the cost of goods sold?

Step 1: Identify the total units available for sale. The company has 100 units at $20 and 200 units at $25, which totals 300 units.
Step 2: Determine the selling method. The question specifies using FIFO (First In, First Out), meaning we sell the oldest inventory first.
Step 3: Sell the first 100 units from the inventory at $20. Calculate the cost: 100 units * $20 = $2,000.
Step 4: After selling 100 units, we still need to sell 50 more units to reach a total of 150 units sold.
Step 5: Sell the next 50 units from the inventory at $25. Calculate the cost: 50 units * $25 = $1,250.
Step 6: Add the costs from Step 3 and Step 5 to find the total cost of goods sold: $2,000 + $1,250 = $3,250.

FIFO (First-In, First-Out) – An inventory valuation method where the oldest inventory costs are used up first when calculating the cost of goods sold.
Cost of Goods Sold (COGS) – The direct costs attributable to the production of the goods sold by a company, including the cost of materials and labor.
Inventory Valuation – The method used to value inventory, which affects the financial statements and tax obligations of a company.