Question

melbourne company uses the perpetual inventory method. melbourne putchased 900 units of inventory that cost $5.00 each. at a later date the company purchased an additional 1,000 units of inventory that cost $5.50 each. if melbourne uses a lifo cost flow method, and sells 1,200 units of inventory, the amount of ending inventory appearing on the balance sheet will be:

Answer 1

Answer:

The amount of ending inventory to be shown in balance sheet = $3,500

Under LIFO(last-in first-out) cost flow method, as the name suggests, the recently purchased units are sold first.

Calculation of value of inventory:

Purchase	Sales	Balance
Quantity	$ per unit	Total	Quantity	$ per unit	Total	Quantity	$ per unit	Total
900 units	$5	$4,500				900 units	$5	$4,500
1,000 units	$5.5	$5,500				900 units	$5	$4,500
						1,000 units	$5.5	$5,500
			1,000 units	$5.5	$5,500	900 units	$5	$4,500
			200 units	$5	$1,000	700 units	$5	$3,500
		$10,000			$6,500			$3,500

See, out of 1,200 units sold, first 1,000 units are from recently purchased units @ $5.5 and remaining 200 units are from the previous 900 units @ $5. The the amount of ending inventory appearing on the balance sheet will be:

$3,500 (remaining 700 units of first purchase @ $5)