Question

The following lots of Commodity Z were available for sale during the year. Beginning inventory 7 units at $48 First purchase 15 units at $51 Second purchase 55 units at $59 Third purchase 15 units at $65 The firm uses the periodic system, and there are 20 units of the commodity on hand at the end of the year. What is the ending inventory balance at the end of the year according to the LIFO method?

Answer 1

Using the LIFO method, the last units purchased are assumed to be sold first. Therefore, the cost of goods sold (COGS) is calculated as follows:

COGS = 15 × $65 + 55 × $59 + 7 × $51 = $3,675

To calculate the ending inventory balance, we need to add up the cost of the remaining units using the LIFO method. Since there are 20 units on hand at the end of the year, we can use the following steps:

Assume that the first 15 units purchased (at $51 each) and 5 units from the second purchase (at $59 each) make up the 20 units on hand.

Calculate the cost of these units: 15 × $51 + 5 × $59 = $1,120

Subtract this amount from the cost of the second purchase (55 units at $59): 55 × $59 - $1,120 = $2,905

Therefore, the ending inventory balance at the end of the year using the LIFO method is $2,905.

Explanation: