Homework SourseA company had the following purchases and sales during its f
A company had the following purchases and sales during its first year of operations:
On December 31, there were 32 units remaining in ending inventory. Using the Perpetual LIFO inventory valuation method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)
| Purchases | Sales | |
| January: | 30 units at $220 | 22 units |
| February: | 40 units at $225 | 25 units |
| May: | 35 units at $230 | 29 units |
| September: | 32 units at $235 | 28 units |
| November: | 29 units at $240 | 30 units |
Solution
the following table shows the required calculations:
LIFO means the items forming part of inventory at the end will be sold off first,
The value of closing inventory will be = $7220 on december 31.
Note: since in november number of units sold greater than the number of units purchased, the deficiency is covered by selling 1 unit of immediately preceeding month\'s purchase.
| month | purchases | sales | balance in units | value of ending inventory |
| January | 30 units | 22 units | 8 units of january purchase | (30 - 22)=>8 units*$220 =>$1,760 |
| February | 40 units | 25 units | 8 units of january purchase + 15 units of feb purchase | (40 - 25)=>15 units *$225 =>$3,375 + $1,760 of previous month=>$5,135 |
| May | 35 units | 29units | 8 units of jan+ 15 units of Feb + 6 units of may | (35-29)=>6units*$230=>$1,380 + $5,135 of previous month =>$6,515 |
| september | 32 units | 28 units | 8 units of jan + 15 units of Feb + 6 units of may + 4 units of sept | (32-28)=>4 units@$235=>$940 + $6515=>$7,455 |
| november | 29 units | 30 units (see note) | 8 units of jan + 15 units of Feb + 6 units of may + 3 units of sept=>32 units | (29 -30)=>-1 units=> 1 unit is sold from september purchase, balance = $7455 of previous month - $235=>$7220 |
| december | nil | nil | 32 units as shown above | $7220 as shown above |
