Question

In its first month of operation, Kuhlman company purchased 260 units of inventory for $11, then 360 for $12, and finally 300 for $13. At the end of the month,320 units remained. Compute the amount of phantom profit that would result if the company used FIFO rather than LIFO.

Answer 1

Purchases:
260 units @ $11
360 units @ $12
300 units @ $13

Number of units available for sale = 260 + 360 + 300
Number of units available for sale = 920

Cost of goods available for sale = 260 * $11 + 360 * $12 + 300 * $13
Cost of goods available for sale = $11,080

Number of units in ending inventory = 320

Number of units sold = Number of units available for sale - Number of units in ending inventory
Number of units sold = 920 - 320
Number of units sold = 600

LIFO:

Cost of Goods Sold = 300 * $13 + 300 * $12
Cost of Goods Sold = $7,500

FIFO:

Cost of Goods Sold = 260 * $11 + 340 * $12
Cost of Goods Sold = $6,940

Profit = Cost of Goods Sold, LIFO - Cost of Goods Sold, FIFO
Profit = $7,500 - $6,940
Profit = $560