Question

Belle Co. has beginning inventory of 12 sets of paints at a cost of $1.50 each. During the year, the store purchased 7 at $3.00, 8 at $3.25, and 12 at $3.50. By the end of the year, 31 sets were sold. Using the LIFO method, the cost of ending inventory is A. $3.50. B. $28.00. C. $12.00. D. $21.00.

Answer 1

Answer: The correct answer is choice c - $12.00.

Explanation: The LIFO method of inventory stands for Last In, First Out. This means that the value of the most recent inventory purchased is used to value the products sold.

In this case there was a beginning inventory of 12 units at a cost of $1.50 each. Throughout the year there were 27 additional paint sets purchased and 31 sets sold. Using the LIFO method, the 31 sets sold were the 27 that were purchased throughout the year, plus 4 from beginning inventory. This only leaves 8 of the beginning inventory left as ending inventory. The value of each of these is $1.50, so the total is 8 units x $1.50 = $12.00 value of ending inventory.

Answer 2

The number of additional items that Belle Co. purchased is equal to 27. That is, 7 + 8 + 12 which is equal to 27. The concept of LIFO is "Last In First Out" which means that the ones that has been purchased last should be dispensed off first.

The company sold 31 units. 27 of this is already the newly purchased ones and 4 came from the beginning inventory leaving the number of items to only 8 sets of paint for $1.5.

The cost of the ending inventory is,

I = 8($1.5) = $12

The answer is letter C. $12.00.