Question

In its first month of operations, Vaughn Manufacturing made three purchases of merchandise in the following sequence:

(1) 340 units at $5,
(2) 440 units at $7, and
(3) 540 units at $8.
Assuming there are 240 units on hand at the end of the period, compute the cost of the ending inventory under
(a) the FIFO method and
(b) the LIFO method.
Vaughn Manufacturing uses a periodic inventory system.

Answer 1

`Ending\ Inventory = \$1920` --- FIFO

`Ending\ Inventory = \$1200` -- LIFO

Step-by-step explanation:

Solving (a):

FIFO method

This means that the first items to be listed were sold out and only 240 of the last item is left

This implies that the following units were sold

340 units at $5; 440 units at $7 and (540 - 240) units at $8

So: We're left with

`Ending\ Inventory = 240 * \$8`

`Ending\ Inventory = \$1920`

Solving (b):

LIFO method

This means that the last items to be listed were sold out and only 240 of the fist item is left

This implies that the following units were sold

540 units at $8; 440 units at $7 and (340 - 240) units at $5

So: We're left with

`Ending\ Inventory = 240 * \$5`

`Ending\ Inventory = \$1200`