Question

The following units of an inventory item were available for sale during the year:

Beginning inventory 7 units at $51 First purchase 17 units at $53 Second purchase 23 units at $55 Third purchase 14 units at $65

The firm uses the periodic inventory system. During the year, 48 units of the item were sold.

The value of ending inventory using LIFO is a.$675 b.$854 c.$357 d.$1,032

Answer 1

Option (a) is correct

When periodic inventory system is used, inventory physical count is made at the end of year. Under LIFO (Last in first out) method, units that are sold will be from the most recent purchases. 48 units will be sold as per below:

From third purchase: 14 units

From second purchase: 23 units

From first purchase: 11 units

So, ending inventory will comprise of:

Remaining units from first purchase: 6 units (i.e. 17 - 11) @ $53 = $318

From beginning inventory: 7 units @ $51 = $357

Value of ending inventory = $318 + $357 = $675