4. Exercise Four: You are hired as a business consultant by Jay Z\'s Convenience

Question

4. Exercise Four: You are hired as a business consultant by Jay Z's Convenience Stores to help them with their inventory control shown below. As part of your first project, you are asked to solve the following problems, (a) if the company sells 10,000 units, find the Cost of Goods Sold under FIFO Jay Z's Convenience Store Pool of Costs-Cost of Goods Available for Sale Unit Cost Date 6/1 7/15 8/24 10/27 Explanation Units Total Cost 12.00 $ 11.00 10.00 $ 14.00$ 30,000.00 38,500.00 45,000.00 86,800.00 Beginning Inventory 2500 Purchase Purchase Purchase 3500$ 4500$ 6200

Explanation / Answer

FIFO means First in First Out

In FIFO, the goods which were purchased first will sold first

COGS is the cost of goods that is sold during the year

So to calculates COGS we will consider first cost inventory from previous year or of those goods which were purchased earlier in the year

In this case company sold 10,000 units

From the given table, first inventory from previus year would be considered in COGS i.e. 2500 units at unit cost of $12 i.e total COGS of $30,000

After considering inventory remaining amount of units sold in the year = 10,000 - 2500 = 7,500

Now in COGS we will consider the goods purchased on 7/15 i.e. 3500 units at unit cost of $11 i.e. total COGS of $38,500

After considering purchased items on 7/15 remaining amount of units sold in the year = 7,500 - 3500 = 4000

Now in COGS we will consider the goods purchased on 7/15 i.e. 4500 units at unit cost of $10 but remaining units is 4000 which is less than the purchased units so it will contribute 4000*10 = $40,000 in total COGS

Therefore, COGS for year = 30,000 + 38,500 + 40,000 = $108,500

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