Question

The inventory transactions of Green Products Inc.are shown below. Date Transaction Number of Units Unit Cost Jan. 1 Beginning inventory 500 $ 5 May 15 Purchase 1,000 6 Jun. 10 Purchase 500 7 Oct. 25 Purchase 2,000 8 Units sold during the year: 3,000 What is the amount of cost of goods sold that Green Products will report in its income statement for the current year, if it uses the last-in, first-out cost method? Multiple Choice a.$5,500 b.$8,000 c.$20,000 d.$22,500

Answer 1

The cost of goods sold for Green Products Inc. using the LIFO method is $22,500, obtained by adding costs from the most recent purchases of inventory and working backwards until the entirety of the sold units is accounted for.

Step-by-step explanation:

The student is asking how to calculate the cost of goods sold (COGS) using the Last-In, First-Out (LIFO) inventory valuation method for Green Products Inc.

To calculate the COGS using the LIFO method, we start with the most recent inventory purchases and work backwards until we have accounted for the total number of units sold during the year. Since 3,000 units were sold, we calculate the cost as follows:

From the Oct. 25 purchase, take 2,000 units at $8 each, totaling $16,000.

Then from the Jun. 10 purchase, take 500 units at $7 each, adding $3,500.

Finally, from the May 15 purchase, take the remaining 500 units at $6 each, adding $3,000.

The sum of these figures is $16,000 + $3,500 + $3,000, which equals $22,500. Therefore, the amount of cost of goods sold that Green Products will report in its income statement for the current year using the LIFO method is $22,500.