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Manal
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how do you calculate ending inventory using FIFO perpetual ...

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how do you calculate ending inventory using FIFO perpetual inventory system

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coral springs, Florida

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Submitted: 10 years ago.
Category: Finance
Expert:  Manal replied 10 years ago.

Hi!



FIFO (First-in-First - out) assumes that units purchased at the beginning of the accounting period are sold first. From that we can see that the ending inventory is the cost of the last units purchased but not sold. For example, assuming that a company sells 100 units.


The beginning inventory was 10 units @ $3 per unit, total cost = (10 *$3) = $30


Purchased 40 units @ $4 , total cost = (40 * $4) $160


Purchased 70 units @ $5, total cost = (70*$5) = $350


Of the 100 units that were sold, therefore, 10 units were purchased at $3, 40 units were purchased at $4, and 50 units were purchased at $5. Therefore what is remaining in inventory is the remainder of the 70 units purchased at $5 (which = 70 - 50 = 20 units)


The cost of ending inventory, hence = 20*$5 = $100


Hope this explains it


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