Hemming Co. reported the following current-year purchases and sales for its only product:- Beginning inventory: 100 units at \$10 each- Purchases: 200 units at \$12 each- Sales: 250 unitsAssuming Hemming Co. uses the FIFO (First-In, First-Out) inventory method, what is the cost of goods sold (COGS) for the year?

• A. \$3,000
• B. \$2,600
• C. \$2,700
• D. \$2,800

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the FIFO (First-In, First-Out) inventory method. Under FIFO, the oldest inventory costs are used first when calculating the cost of goods sold (COGS). This means the beginning inventory is sold first, followed by the earliest purchases.
2. Step 2: Calculate the total number of units sold. Hemming Co. sold 250 units during the year. This will be used to determine how many units from the beginning inventory and purchases are included in the COGS calculation.
3. Step 3: Allocate the units sold based on FIFO. Start with the beginning inventory of 100 units at \$10 each. Then, move to the purchases of 200 units at \$12 each. Since 250 units were sold, you will use all 100 units from the beginning inventory and 150 units from the purchases.
4. Step 4: Compute the cost of goods sold (COGS). Multiply the number of units sold from each inventory layer by their respective unit costs. For the beginning inventory: \( 100 \times 10 \). For the purchases: \( 150 \times 12 \). Add these two amounts together to get the total COGS.
5. Step 5: Verify the calculation and ensure the remaining inventory is accounted for. After selling 250 units, there will be 50 units left from the purchases (200 - 150). These remaining units will be valued at \$12 each and represent the ending inventory.