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Calculation of cost of goods sold FIFO and ending inventory

To calculate the Cost of Goods Sold (COGS) using the **FIFO (First In, First Out)** method and determine the **Ending Inventory**, I will break down the information from the table into the relevant components.

### FIFO Method Explanation:
In FIFO, the oldest inventory items (first purchased) are sold first. Therefore, when calculating COGS, you will use the cost of the oldest purchases until the total units sold are accounted for.

#### Data from the table:

1. **Sales:**
   - Jan 8 Sales: 300 units
   - Jan 15 Sales: 250 units
   - Total Sales: 550 units

2. **Purchases and Beginning Inventory:**
   - Jan 1 Beginning Inventory: 300 units @ RO 10
   - Jan 2 Purchase: 200 units @ RO 15
   - Jan 11 Purchase: 100 units @ RO 17
   - Jan 18 Purchase: 300 units @ RO 20
   - Total Purchases = 900 units

Now, let's break this down:

### Step 1: Calculate Cost of Goods Sold (FIFO)

- **300 units sold on Jan 8:**
   - Take the 300 units from the oldest inventory (Jan 1 Beginning Inventory).
   - COGS for these 300 units = \(300 \times RO 10 = RO 3,000\).

- **250 units sold on Jan 15:**
   - We need 250 units more to account for the total sales.
   - First, exhaust the remaining Jan 2 purchase:
     - \(200 \times RO 15 = RO 3,000\) (from Jan 2 purchase).
   - We still need 50 units, so take 50 units from the next available purchase (Jan 11):
     - \(50 \times RO 17 = RO 850\).

- **Total COGS:**
   - \(RO 3,000 (Jan 1) + RO 3,000 (Jan 2) + RO 850 (Jan 11) = RO 6,850\).

### Step 2: Ending Inventory Calculation

After selling 550 units, we are left with:
- 50 units from the Jan 11 purchase at RO 17.
- 300 units from the Jan 18 purchase at RO 20.

- **Ending Inventory:**
   - \(50 \times RO 17 = RO 850\) (from Jan 11).
   - \(300 \times RO 20 = RO 6,000\) (from Jan 18).
   - Total Ending Inventory = \(RO 850 + RO 6,000 = RO 6,850\).

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### Summary:

- **COGS (FIFO):** RO 6,850
- **Ending Inventory:** RO 6,850

Would you like further clarification on any of the steps or a detailed explanation?

Here are some questions to deepen your understanding:
1. How does the FIFO method differ from the LIFO method in calculating COGS?
2. How would the COGS change if the company used the LIFO method?
3. Why is the ending inventory higher in the FIFO method during periods of rising prices?
4. How does FIFO impact financial statements, especially in inflationary periods?
5. Can you calculate the gross profit using the COGS we derived?

**Tip:** The choice between FIFO and LIFO can significantly impact financial reporting, especially in periods of price volatility.

Calculation of cost of goods sold FIFO and ending inventory.

Learn how to apply the FIFO method for calculating the cost of goods sold (COGS) and ending inventory using a detailed example. This solution involves breaking down inventory purchases and sales transactions step-by-step to ensure accuracy. Suitable for students pursuing accounting or business studies.

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