Question

The following information is available for Massey Company:                          
Beginning inventory       600 units at $5                  
First purchase 900 units at $6                  
Second purchase       500 units at $7                  
                          
Assume that Massey uses a periodic inventory system and that there are 800 units left at the end of the month.                          
                          
Instructions                          
Compute the cost of ending inventory under the                          
(a) FIFO method.                          
(b) LIFO method.                          

Answer 1

(a) FIFO method : In this method those goods are sold first which are purchased first and the ending inventory is from the latest purchases.
Cost of ending inventory = ( 500 * 7 ) + ( 300 * 6 )	5300
(b) LIFO method : In this method those goods are sold first which are purchased last ( i.e. recently ) and the endign inventory is from beginning inventory and ealier purchases.
Cost of ending inventory = ( 600 * 5 ) + ( 200 * 6 )	4200