Question

Two items are purchased: 100 packs of felt pens at $4.00 each and 60 packs of felt pens at $3.80 each. (A pack contains 3 felt pens). Find the ending inventory if 50 packs were on hand at the end of the period in dollars.

Assume the 100 packs of felt pens bought at $4.00 each were purchased first, before the 60 packs of felt pens bought at $3.80 each. 50 packs were on hand at the end of the period.

Find the value of the ending inventory using LIFO in dollars.

Answer 1

LIFO (Last-in, First-out) assumes that the last items purchased are the first ones to be sold. Therefore, we will assume that the 50 packs of felt pens on hand at the end of the period are from the first purchase of 60 packs at $3.80 each.

First, let's calculate the cost of the 100 packs purchased at $4.00 each:

100 packs x $4.00/pack = $400

Now, let's calculate the cost of the 60 packs purchased at $3.80 each:

60 packs x $3.80/pack = $228

Since we are using LIFO, we will assume that the 50 packs on hand at the end of the period are from the first purchase of 60 packs at $3.80 each. Therefore, we will subtract the cost of 50 packs from the $228:

50 packs x $3.80/pack = $190

The value of the ending inventory using LIFO will be the cost of the remaining 10 packs from the second purchase (60 packs) at $3.80 each, plus the cost of the 50 packs from the first purchase (60 packs):

10 packs x $3.80/pack = $38

$190 + $38 = $228

Therefore, the value of the ending inventory using LIFO is $228.