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Hi John, thanks for your great lectures, they have been massive help and they’ve really cleared up my understanding of a lot of the topics. I’ve got my exam tomorrow so bit nervous about it but I remember you saying a quick way to calculate FIFO is by working out whats left in inventory and multiplying that by the latest price (which makes sense to me). However, maybe I misunderstood it but it didn’t seem to work for the below question:
1 January Purchases 4000 units for $10000
31 January Purchases 1000 units for $2000
15 Feb Sales 3000 units for $13000
28 Feb Purchases 1500 units for $3750
14 Mar Sales 500 units for $1200Therefore there were 300 units left and I think the price should have been 2.4 (ie 1200/500). However this gives an answer of 7200 but apparently the answer was 7000. Please could I check this with you? Many thanks
There are 3,000 left (not 300).
1,500 must have been bought on 28 Feb and so cost $3750.
The remaining 1,500 cannot have been bought on 28 Feb so we go to the previous purchase. 1,000 of them were therefore bought on 31 Jan and so cost $2,000.
That leaves 500 which must have been bought on 1 Jan and cost 500 x $10,000/4,000 = $1,250
Therefore the total cost = 3750 + 2,000 + 1,250 = $7,000
Many thanks John, i have to resit as got 48 sadly. I am just relooking at this after watching your lecture. APologies for typo, yes it was 3000. So this is slightly different to your example I guess as they havent given the price. So the best way is to work out the cost per unit after each receipt and then work backwards so if there was say 200 left and the last receipt was for 100 at $5 and the receipt before was say 100 as well at $6, then it would be:
100 x 5 + 100 x 6 = $1100 closing value? is that correct?
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