Question

In its first month of operations, Cheyenne Corp. made three purchases of merchandise in the following sequence: (1) 185 units at $5, (2) 570 units at $6, and (3) 130 units at $7.Assuming there are 260 units on hand, compute the cost of the ending inventory under the (a) FIFO method and (b) LIFO method. Cheyenne uses a periodic inventory system.

Answer 1

a. $1,375

b. $1,240

Step-by-step explanation:

FIFO method

FIFO assumes that the inventory to arrive first will be sold first. Inventory values depend on earlier purchases

Inventory = 185 x $5 + 75 x $6

= $1,375

LIFO method

LIFO assumes that the inventory to arrive last will be sold first. Inventory values depend on recent purchases

Inventory = 130 x $7 + 55 x $6

= $1,240