Question

Hite Co. was formed on January 2, 2017, to sell a single product. Over a two-year period, Hite's acquisition costs have increased steadily. Physical quantities held in inventory were equal to three months' sales at December 31, 2017, and zero at December 31, 2018. Assuming the periodic inventory system, the inventory cost method which reports the highest amount of each of the following is ___________ .

Answer 1

LIFO for December 31 2017 and any system will report the same cost on December 31 2018

Step-by-step explanation:

The question says "Hite's acquisition costs have increased steadily.", which means the units purchased later have a higher price. LIFO stands for Last In First Out, which means if Hite Co. sold something, the cost should be of the ones purchased the last, not the first, which means, the ones purchased at a more expensive price, hence increasing the costs.

So in December 31 2017, there are still units in stock (physical quantities in inventory), which means that under LIFO system, those ones still remaining are the ones purchased first, cheaper than the ones sold (purchased last, as last ones got in are the first ones out). So LIFO will report a higher cost than another system such as FIFO (first in first out), which would mean that the first ones purchased will go out first, the cheapest are sold while the most expensive units are still in inventory.

However, in December 31 2018, it does not matter which system is used, as there are no more units in inventory. All units were sold, so it doesn't matter which ones were out first and which ones last, they all got out and costs are reported the same.