FIFO Perpetual Inventory

The beginning inventory at Dunne Co. and data on purchases and sales for a three-month period ending June 30 are as follows:

Date		Transaction	Number of Units		Per Unit		Total
Apr. 3		Inventory	48		$225		$10,800
8		Purchase	96		270		25,920
11		Sale	64		750		48,000
30		Sale	40		750		30,000
May 8		Purchase	80		300		24,000
10		Sale	48		750		36,000
19		Sale	24		750		18,000
28		Purchase	80		330		26,400
June 5		Sale	48		790		37,920
16		Sale	64		790		50,560
21		Purchase	144		360		51,840
28		Sale	72		790		56,880

Required:

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Goods Sold Unit Cost column and in the Inventory Unit Cost column.

Dunne Co. Schedule of Cost of Goods Sold FIFO Method For the Three Months Ended June 30
	Purchases			Cost of Goods Sold			Inventory
Date	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
Apr. 3								$	$
Apr. 8		$	$
Apr. 11					$	$
Apr. 30
May 8
May 10
May 19
May 28
June 5
June 16
June 21
June 28
June 30	Balances					$			$

2. Determine the total sales and the total cost of goods sold for the period. Journalize the entries in the sales and cost of goods sold accounts. Assume that all sales were on account.

Record sale
Record cost

3. Determine the gross profit from sales for the period. $

4. Determine the ending inventory cost as of June 30. $

5. Based upon the preceding data, would you expect the ending inventory using the last-in, first-out method to be higher or lower? Lower

Feedback

1. FIFO means that the first units purchased are assumed to be the first to be sold. Therefore, ending inventory is made up of the most recent purchases. Think of your inventory in terms of "layers." The first sale comes from the oldest layer, which is beginning inventory. When deciding which layer to use for costing of the next sale ask yourself: "Is the remaining amount of the beginning inventory layer enough to satisfy the second sale?" If not, the other units sold should be taken from the next purchase layer, which then contains the oldest costs. Continue this process for each transaction. If you have completed the problem correctly, the remaining units making up ending inventory should be costed at the May 25 unit purchase price.

2. Total sales are obtained by taking the number of units sold times their sale prices for all sales and adding these amounts together. The total cost of merchandise sold can be obtained by adding the FIFO costs in the perpetual inventory record. When the perpetual inventory system is used, revenue is recorded each time a sale is made along with an entry to record the cost of the merchandise sold. For this problem, however, prepare one journal entry for the sale on account and one for the cost of merchandise sold.

3. Sales minus cost of merchandise sold equals gross profit.

4. The ending inventory is what is left after subtracting the cost of goods sold from the goods available for sale. Multiply the units remaining after the last sale by their corresponding most recent layer cost to determine the FIFO cost of the ending inventory.

5. Consider how prices were moving. Remember FIFO reports higher gross profit, net income, and ending inventory than the LIFO method when costs (prices) are increasing.

Learning Objective 2, Learning Objective 3.

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