Question

In its first month of operation, Swifty Corporation purchased 270 units of inventory for $8, then 370 units for $9, and finally 310 units for $10. At the end of the month, 350 units remained.

Compute the amount of phantom profit that would result if the company used FIFO rather than LIFO.

Phantom profit= ?

Answer 1

Phantom profit is the difference in profit that would result from using a different inventory costing method. To calculate the amount of phantom profit resulting from using FIFO instead of LIFO, compare the ending inventory value under FIFO with the ending inventory value under LIFO. In this case, the phantom profit would be $220.

Step-by-step explanation:

Phantom profit is the difference in profit that would occur if a different inventory costing method, such as FIFO (First-In, First-Out), is used instead of LIFO (Last-In, First-Out). To calculate the amount of phantom profit resulting from using FIFO instead of LIFO, you need to compare the ending inventory value under FIFO with the ending inventory value under LIFO.

1. First, calculate the ending inventory value under LIFO. Since 350 units remain, and the last purchase was of 310 units at $10 each, the ending inventory value under LIFO would be 310 * $10 = $3100.
2. Next, calculate the ending inventory value under FIFO. To do this, you need to add up the cost of the units purchased in the first month until the amount exceeds the number of units remaining. In this case, the cost of the first 270 units is $8 each, which comes to 270 * $8 = $2160. Since there are still 80 units remaining, you need to add the cost of the next purchase, which is 80 * $9 = $720. Therefore, the ending inventory value under FIFO would be $2160 + $720 = $2880.
3. Finally, calculate the amount of phantom profit by subtracting the ending inventory value under FIFO from the ending inventory value under LIFO. In this case, the phantom profit would be $3100 - $2880 = $220.

Answer 2

$640

Step-by-step explanation: