Question

Melbourne Company uses the perpetual inventory method. Melbourne purchased 600 units of inventory that cost $2.75 each. At a later date the company purchased an additional 700 units of inventory that cost $3.25 each. If Melbourne uses a LIFO cost flow method, and sells 900 units of inventory, the amount of ending inventory appearing on the balance sheet will be:

A. $1,200.

B. $1,100.

C. $1,300.

D. $2,825.

Answer 1

The correct answer is option (b) $1,100

Step-by-step explanation:

Data Given:

First purchase and the units = $2.75 at 600 units

Second purchase and the unit = $3.25 at 700 Units

Quantity sold = 900 units

Ending inventory cost = ?

Total purchase = 600 + 700

= 1300 units

Ending inventory unit = total purchase - quantity sold

= 1300 - 900

= 400 units

Ending inventory at $2.75 cost = 400 units * 2.75

=$1,100

Answer 2

B. $1,100.

Step-by-step explanation:

The LIFO inventory method Means Last in First Out is an assumption for cost of goods allocation purposes and assumes that the newly purchased goods in a company are first sold out.

Calculating the cost of goods sold

600 *2.75 =$1 650

700*3.25 =$2 275

900 units were sold so under LIFO assumption most recent goods are sold out first so all 700 of goods purchased last get sold and 200 of the inventory purchased earlier get sold

600-200 = 400

So the ending inventory is 400 at 2.75 dollar cost

=$1100

So the answer is B