Question

Vargas Company uses the perpetual inventory method. Vargas purchased 1,300 units of inventory that cost $14.00 each. At a later date the company purchased an additional 1,700 units of inventory that cost $15.00 each. Vargas sold 1,400 units of inventory for $18.00. If Vargas uses a FIFO cost flow method, the amount of cost of goods sold appearing on the income statement will be:

Answer 1

Answer:

Cost of goods sold is $19,700

Explanation:

Given:

Vargas company follows FIFO method. So goods purchased first will be sold first.

Units sold = 1,400 units

Initial purchase = 1300 units @ $14 each

Next purchase = 1700 units @ $15 each

Vargas's cost of goods sold includes 1300 units from initial purchase and 100 units from the next purchase.

Cost of goods sold = (1300 × 14) + (100 × 15)

                                = 18,200 + 1500

                                = $19,700

Vargas reports cost of goods sold of $19,700 in the income statement.