Question

A firm purchases 1,300 units of product at \$2.65/unit during the year and sells 1,500 units....

A firm purchases 1,300 units of product at \$2.65/unit during the year and sells 1,500 units. If the beginning inventory consists of 300 units valued at \$2.40/unit and a periodic LIFO inventory system is use then the LIFO liquidation this year?

 Decreased income by \$50. Increased income by \$50. Decreased income by \$75. Increased income by \$75.

The answer would be Option B. Increased income by \$50.

Since the LIFO system id being used. Out of the 1500 sales, 1300 will be made from the new purchase made as that is the latest.

The remaining 200 will be sold from the beginning inventory.

This beginning inventory initially valued at \$2.4 is being sold at \$2.65/unit. So the difference in income is (2.65-2.4)*200 = \$50

This gives us the answer that income will increase by \$50.

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