Question

In its first month of operation, Kingbird, Inc. purchased 300 units of inventory for $7, then 400 units for $8, and finally 340 units for $9. At the end of the month, 380 units remained. Compute the amount of phantom profit that would result if the company used FIFO rather than LIFO.

Answer 1

Answer

Extra Profit from use of FIFO method instead of LIFO

$640

Calculated as

Total Units = 300+400+340 = 1040

Ending units = 380

Units used = 1040-380 = 660 units

Cost of Goods sold under LIFO

340 x 9 = 3060

320 x 8 = 2560

Total Cost of Goods sold = $3060+$2560 = $5620

Cost of Goods sold under FIFO
300 x $7 = 2100

360 x $8 = $2880

Total Cost of Good Sold = $4980

Extra profit due to use of FIFO instead of LIFO = $5620-$4980 = $640

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