Sheridan Company's inventory records show the following data: Units Unit Cost Inventory, January 1 10800 $10.00 Purchases: June 18 8300 7.50 November 8 6900 5.00 A physical inventory on December 31 shows 6900 units on hand. Under the FIFO method, the December 31 inventory is

  = $34,500

Explanation:

Under the First in First Out (FIFO) method of the perpetual inventory system, it assumed that the first batch of inventory received into the store should be issued out first. Therefore, inventories are valued using the price of the oldest batch in turn according to when the batches arrive.

The units sold in this question can be determined as:

Opening inventory + Purchases - Closing inventory

=10,800 + (8,300 + 6,900 ) - 6,900 = 19,100 units

Under the FIFO method, the 19,100 units sold must have been priced using the prices of stock in this order:

10, 800

8,300  

19,100

So the balance of 6,900 units represents the closing inventory which will be valued at the unit cost of $5 , the price of the oldest batch as at that date.

Value of 6,900 = 6,900 × $5

                         = $34,500

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