Question

The following data represent the beginning inventory and, in order of occurrence, the purchases and sales of Ilse's Garden, Inc., for an operating period.

	Units	Unit Cost		Total Cost		Units Sold
Beginning Inventory	30	$21		$630
Sale No. 1						20
Purchase No. 1	50	30		1,500
Sale No. 2						40
Purchase No. 2	20	33		660
Totals	100			$2,790		60

Assuming Ilse's Garden, Inc. uses LIFO perpetual inventory procedures, sale no. 2 is recorded as an entry to Cost of Goods Sold for:

Select one:

A. $1,320

B. $1,110

C. $840

D. $1,200

Answer 1

LIFO method means units purchase in recent, sold first. Cost of goods sold is the cost of the most recent purchase.

	Units purchased			Cost of goods sold			Ending Inventory
Particular	Units	Per unit value	Amount	Units	Per unit value	Amount	Units	Per unit value	Amount
Beginning Inventory							30	$21	$630
Sale No. 1				20	$21	$420	10	$21	$210
Purchase no.1	50	$30	$1,500				10	$21	$210
							50	$30	$1,500
Sale No. 2				40	$30	$1,200	10	$21	$210
							10	$30	$300
Purchase no. 2	20	$33	$660				10	$21	$210
							10	$30	$300
							20	$33	$660

Cost of goods sold (sale no. 2) = $1,200 (as we calculated above)

$1,200 is the correct answer.