Perpetual FIFO Inventory Method Example Help

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Meaning of Perpetual FIFO Inventory Method

 

Under this method it is assumed that the goods are sold in the order in which they are purchased. It means they are charged against revenues in the order in which they are incurred.The Ending inventory represents the most recent costs incurred to purchase merchandise or materials.
 

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Perpetual FIFO Inventory Method Example Explanation

 

Understanding Perpetual FIFO Inventory Method through an example.
Example: the following is the information of a company showing perpetual FIFO inventory valuation
Date units purchased units sold cost per unit inventory units
 

June 1 beginning inventory 700 $10 700
June 3 purchase 100 $12 800
June 8 sale 500 300
June 15 purchase 600 $14 900
June 19 purchase 200 $15 1,100
June 25 sale 400 700
June 27 sale 100 600
June 30 ending inventory
 

(*1) 500 units sold
= 700 units from beginning inventory of at $10cost per unit.
 

Cost of goods sold = 500x$10 = $5,000

(*2) 400 units sold
= 200 units from beginning inventory at $10 cost per unit
+ 100 units from June 3 purchases at $12 cost per unit
+ 100 units from June 15 purchases at $14 cost per unit
 

Cost of goods sold = 200x$10 + 100x$12 + 100x$14
= $2,000 + $1,200 + $1,400 = $4,600
 

(*3) 100 units sold
= 100 units from June 15 purchases at $14 cost per unit
Cost of goods sold = 100x$14 = $1,400
Total cost of goods sold
= 500x$10 + 200x$10 + 100x$12 + 100x$14 + 100x$14
= $5,000 + $2,000 + $1,200 + $1,400 + $1,400
= $5,000 + $4,600 + $1,400 = $11,000
 

Cost of ending inventory
= Beginning inventory + Cost of purchases – Cost of goods sold
= $7,000 + (100x$12 + 600x$14 + 200x$15) – $11,000
= $7,000 + $12,600 – $11,000 = $8,600
 

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