Question

The Shirt Shop had the following transactions for T-shirts for 2018, its first year of operations: Jan. 20 Purchased 330 units @ $ 5 = $ 1,650 Apr. 21 Purchased 90 units @ $ 6 = 540 July 25 Purchased 210 units @ $ 8 = 1,680 Sept. 19 Purchased 80 units @ $ 10 = 800 During the year, The Shirt Shop sold 530 T-shirts for $15 each. Required Compute the amount of ending inventory The Shirt Shop would report on the balance sheet, assuming the FIFO cost flow assumption.

Answer 1

Date	Unit	Unit cost	Total cost
Jan-20	330	$5	$1,650
Apr-21	90	$6	$540
Jul-25	210	$8	$1,680
Sep-19	80	$10	$800
Total	710		$4,670

Number of units available for sale = 710

Number of units sold = 530

Ending inventory = Number of units available for sale- Number of units sold

= 710-530

= 180

As per LIFO method, inventory purchased first is charged to cost first. Hence, ending inventory consists of the units purchased later on.

Thus, ending inventory will be valued as under:

Date	Unit	Unit cost	Total cost
Jul-25	100	$8	$800
Sep-19	80	$10	$800
Total	180		$1,600

The amount of ending inventory The Shirt Shop would report on the balance sheet is $1,600