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Hudson Company started its year with 600 units of beginning inventory at a cost of $4 per unit. During the year, the company made the following purchases: May, 900 units at $5 per unit and July, 500 units at $6 per unit. A physical count of inventory at year-end indicates that there are 700 units in ending inventory. What is the cost of the ending inventory if Hudson Company uses the FIFO method for valuing inventory?

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Answer:

$5,000

Explanation:

                                                units            price                 total  

beginning inventory                600               $4                 $2,400

purchase May                          900               $5                 $4,500

purchase July                          500               $6                 $3,000

total                                       2,000                                    $9,900

ending inventory                    900

The first in, first out (FIFO) method considers that the oldest inventory is sold first.

Ending inventory = (500 x $6) + (400 x $5) = $3,000 + $2,000 = $5,000

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