Question

At the end of January, Mineral Labs had an inventory of 875 units, which cost $10 per unit to produce. During February the company produced 1,400 units at a cost of $14 per unit.

a. If the firm sold 1,850 units in February, what was the cost of goods sold? (Assume LIFO inventory accounting.)

b. If the firm sold 1,850 units in February, what was the cost of goods sold? (Assume FIFO inventory accounting.)

Answer 1

a. Under LIFO inventory accounting, the units that were purchased last or most recent purchases will be sold first.

1850 units were sold as per below:

1400 units from units produced in February @ $14 per unit = $19600

450 units from January ending inventory @ $10 per unit = $4500

Total cost of goods sold = $19600 + $4500 = $24100

b. Under FIFO inventory accounting, the units that were purchased first or most earliest purchases will be sold first.

1850 units were sold as per below:

875 units from January ending inventory @ $10 per unit = $8750

975 units from units produced in February @ $14 per unit = $13650

Total cost of goods sold = $8750 + $13650 = $22400