The inventory data for an item for September are: Sep. 1 Inventory 20 units at $20 4 Sold 10 units 10 Purchased 30 units at $25 17 Sold 20 units 30 Purchased 10 units at $30 17. Using the perpetual system, costing by the first-in, first-out method, what is the cost of the merchandise inventory of 30 units on September 30?

a. $800
b. $650
c. $750
d. $700

$800

Explanation:

Under the FIFO system , inventories are priced using the price of the oldest batch in the stock, after which the price of the next oldest batch and this is done in turn. It is based on the principle that the first batch that arrives the store should be issued first.

So we can work the cost of the closing balance in this question using the table below

Date   Description         Qty   unit ($)                    Value

Sept 1     Bal b/f           20    ×    20        =                 400

       4     Sales           ( 10)  ×     20                           200

                                    10                                      200

        10   Purchase      30  ×    25        =                  750

                                   40                                       950

        17    Sales           ( 20)    Wk 1      =               ( 450)

                                     20                                      500

       30    Purchases     10  ×   30.      =                    300

Closing inventory       30                                       800      

Notes / Working

1. The 20 units sold on September 17  will be valued as follows:

10 units ×    $20 = $200

20 units ×    $25 = $250                

30                         $ 450    

The Cost of the merchandise inventory of 30 units on September 30 =

$800