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8 June, 12:41

Vargas Company uses the perpetual inventory method. Vargas purchased 1,300 units of inventory that cost $14.00 each. At a later date the company purchased an additional 1,700 units of inventory that cost $15.00 each. Vargas sold 1,400 units of inventory for $18.00. If Vargas uses a FIFO cost flow method, the amount of cost of goods sold appearing on the income statement will be:

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  1. 8 June, 13:10
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    Cost of goods sold is $19,700

    Explanation:

    Given:

    Vargas company follows FIFO method. So goods purchased first will be sold first.

    Units sold = 1,400 units

    Initial purchase = 1300 units @ $14 each

    Next purchase = 1700 units @ $15 each

    Vargas's cost of goods sold includes 1300 units from initial purchase and 100 units from the next purchase.

    Cost of goods sold = (1300 * 14) + (100 * 15)

    = 18,200 + 1500

    = $19,700

    Vargas reports cost of goods sold of $19,700 in the income statement.
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