COGS Problem

CFA Level I FRA
#1

A company that uses the LIFO inventory cost method records the following purchases and sales for an accounting period:

Beginning inventory, July 1: $5,000, 10 units July 8: Purchase of $2,600 (5 units) July 12: Sale of $2,200 (4 units) July 15: Purchase of $2,800 (5 units) July 21: Sale of $1,680 (3 units)

The company’s cost of goods sold using a perpetual inventory system is:

A) $3,780. B) $3,760. C) $3,500.

Your answer: A was incorrect. The correct answer was B) $3,760.

With a perpetual inventory system, units purchased and sold are recorded in inventory in the order that the purchases and sales occur. Cost of goods sold for the July 12 sale uses 4 of the units purchased on July 8: 4 × ($2,600 / 5) = $2,080. Cost of goods sold for the July 21 sale uses 3 of the units purchased on July 15: 3 × ($2,800 / 5) = $1,680. COGS = $2,080 + $1,680 = $3,760.

I used the Beginning Inventory + Purchases - Ending Inventory = COGS but i got the wrong answer.

why does 4 * (purchase/unit) = the COGS ?

#2

The given explanation is clear. Can you simply follow what it says?

#3

I dont understand the reasoning behind how one can obtain COGS from purchase/unit. If i understand the reasoning it is easier to remember.

#4

COGS is, cost of goods sold. Or, how much did my inventory item cost me? In this question you are asked to caculate how much each inventory item cost to purchase.

For example; On July 15th, it cost the company $2800 for 5 units, hence each item cost $2800 / 5 = $560. Using the LIFO method i sold 3 units, which cost me $560, therefore my CoGS is 3*560 = $1680

I hope this helps.

#5

thanks ya that helps. Does that mean that in the case of a periodic inventory system, Per unit COGS does not equal to Purchase/Unit?