Question

Willow Company had no beginning inventory. The company purchases 900 units of inventory in January at $5 each, 1,500 units at $4 each in August, and 600 units at $6 each in November. The company sells 450 units during the year. Willow uses a periodic inventory system and the LIFO inventory costing method. What is the cost of goods sold?

A) $1,800
B) $2,802
C) $2,250
D) $2,700

Answer 1

Using the LIFO inventory costing method, the cost of goods sold for the 450 units sold by Willow Company is $2,700, calculated by taking the most recent purchase in November of 600 units at $6 each.

Step-by-step explanation:

The cost of goods sold (COGS) using the Last-In, First-Out (LIFO) inventory costing method in a periodic inventory system is calculated using the most recent inventory purchases. Since Willow Company uses LIFO, we will start with the last purchases made during the year to determine the cost of goods sold for the 450 units that were sold.

Calculation of COGS:

• November purchase: 600 units at $6 each = $3,600 (entire purchase not sold)
• We only need to account for 450 units sold, so: 450 units at $6 each = $2,700

Under LIFO, the remaining 150 units from the November purchase and all units from earlier purchases will remain in ending inventory. Therefore, the COGS for Willow Company is $2,700 (Option D).