A company buys 500 units at Rs. 20 each and 300 units at Rs. 24 each. If it sells 400 units and uses FIFO, the cost of goods sold is:
Correct answer: A. Rs. 8,000
- A. Rs. 8,000
- B. Rs. 8,800
- C. Rs. 9,200
- D. Rs. 9,600
Explanation
FIFO charges the first 400 units at the earliest cost of Rs. 20 each. Thus, cost of goods sold is 400 multiplied by Rs. 20, or Rs. 8,000.
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About Inventory Valuation
Inventory valuation determines the cost of unsold goods and its effect on cost of sales and profit. The work covers inventory counts, included costs, FIFO and weighted-average costing, and the rule that inventory is reported at the lower of cost and net realisable value, not simply at its expected selling price.
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