Question

The LIFO inventory method assumes that the cost of the most recent units purchased are

b. the first to be allocated to ending inventory

c. the first to be allocated to cost of goods sold

d. not allocated to cost of goods sold or ending inventory

a. the last to be allocated to cost of goods sold

Answer 1

--Correct Answer = Option 'C' The LIFO inventory method assumes that the cost of the most recent units purchased are "the first to be allocated to cost of goods sold"

--When goods are sold under LIFO, the Cost of Goods Sold is calculated based on recent purchase rate on which the latest purchase was made.

--For example, if on Jan 6, 20 units were purchased at $ 6 per unit, and on Jan 10, 5 units are sold. The Cost of goods sold of these 5 units = 5 x $ 6 = $ 30