Causwell Company began 2021 with 16,000 units of inventory on hand. The cost of each unit was $6.00. During 2021 an additional 36,000 units were purchased at a single unit cost, and 26,000 units remained on hand at the end of 2021 (26,000 units therefore were sold during 2021). Causwell uses a periodic inventory system. Cost of goods sold for 2021, applying the average cost method, is $179,400. The company is interested in determining what cost of goods sold would have been if the FIFO or LIFO methods were used. Required:
Determine the cost of goods sold for 2021 using the FIFO method.

Causwell Company

The cost of goods sold for 2021 using the FIFO method is:

= $169,000.

Explanation:

a) Data and Calculations:

January 2021 Beginning inventory  16,000  at $6.00 each   $96,000

During 2021   Purchases                 36,000  at $7.30 each    262,800

Total                                                 52,000                           $358,800

December 2021 Ending inventory 26,000                              179,400

December 2021 Cost of goods sold 26,000                        $179,400

Weighted-average cost = Cost of goods sold/Units sold

= $179,400/ 26,000 = $6.90

Total cost of goods available for sale = Total units available * weighted-average cost

= 52,000 * $6.90

= $358,800

Cost of purchases = Total cost minus cost of beginning inventory

= $358,800 - $96,000

= $262,800

Single unit cost of purchases = $262,800/36,000 = $7.30

Cost of goods sold under FIFO:

Beginning inventory 16,000 units at $6.00 each = $96,000

From 2021 purchase 10,000 units at $7.30 each = $73,000

Total cost of goods sold under FIFO =                   $169,000

Cost of goods available for sale = $358,800

less cost of ending inventory           189,800 ($7.30 * 26,000)

Cost of goods sold under FIFO =  $169,000

b) FIFO means First-in, First-out.  It is an inventory costing method based on the assumption that goods that entered the store first are the first to be sold.  This means that goods are sold according to the chronological order in which they were bought or produced.