A company's inventory records report the following purchases during the year: 100 units at \$10 each, 150 units at \$12 each, and 200 units at \$15 each. If the company uses the FIFO (First-In, First-Out) method and sells 300 units, what is the cost of goods sold (COGS)?

• A. \$4,200
• B. \$3,400
• C. \$3,600
• D. \$4,500

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the FIFO (First-In, First-Out) method. FIFO assumes that the oldest inventory items (purchased first) are sold first. This means the cost of goods sold (COGS) will be based on the cost of the earliest purchases.
2. Step 2: Identify the total number of units sold. The problem states that 300 units are sold. This means we need to calculate the cost of the first 300 units purchased.
3. Step 3: Break down the inventory purchases. The company purchased 100 units at \$10 each, 150 units at \$12 each, and 200 units at \$15 each. Using FIFO, we start with the oldest inventory (100 units at \$10 each), then move to the next batch (150 units at \$12 each), and finally use part of the third batch (50 units at \$15 each) to reach the total of 300 units sold.
4. Step 4: Calculate the cost of goods sold (COGS) for each batch. Multiply the number of units sold from each batch by their respective unit costs: (100 units × \$10) + (150 units × \$12) + (50 units × \$15).
5. Step 5: Add the results from Step 4 to determine the total COGS. This sum represents the cost of the first 300 units sold under the FIFO method.