Question

A company purchased 200 units for $ 20 each on January 31. It purchased 400 units for $40 each on February 28. It sold a total of 460 units for $110 each from March 1 through December 31. If the company uses the last−​in, first−out inventory costing​ method, calculate the amount of ending inventory on December 31.​ (Assume that the company uses a perpetual inventory​ system.)

Answer 1

To calculate the amount of ending inventory using the LIFO method, subtract the cost of the units sold from the total cost of units purchased. In this case, the ending inventory on December 31 is $400.

Step-by-step explanation:

To calculate the amount of ending inventory on December 31 using the last-in, first-out (LIFO) method, we need to determine the cost of the units sold and subtract that from the total cost of units purchased.

First, calculate the cost of the units purchased in January:

200 units x $20 each = $4,000

Next, calculate the cost of the units purchased in February:

400 units x $40 each = $16,000

Since the company sold 460 units, the cost of the units sold will be the cost of the units purchased in February and 60 units from January.

The cost of the units sold will be:

460 units x $40 each + 60 units x $20 each = $18,400 + $1,200 = $19,600

To calculate the ending inventory, subtract the cost of the units sold from the total cost of units purchased:

Total cost of units purchased = $4,000 + $16,000 = $20,000

Ending inventory on December 31 = Total cost of units purchased - Cost of units sold = $20,000 - $19,600 = $400