Homework SourseUse the information below to answer the following question T
Use the information below to answer the following question.
The following lots of a particular commodity were available for sale during the year:
The firm uses the periodic system, and there are 20 units of the commodity on hand at the end of the year.
What is the amount of cost of merchandise sold for the year according to the LIFO method?
a.$1,510
b.$1,250
c.$1,380
d.$1,375
| Beginning inventory | 5 units at $61 |
| First purchase | 15 units at $63 |
| Second purchase | 10 units at $74 |
| Third purchase | 10 units at $77 |
Solution
a. $ 1,510
Working:
| Under periodic method, inventory records are updated at the end of period irrespective of date of purchase. | ||||||||||
| LIFO stands for last in first out. It means inventory bought in last is recorded as sold first. | ||||||||||
| Step-1:Calculation of units sold | ||||||||||
| Units | ||||||||||
| Beginning Inventory | 5 | |||||||||
| First Purchase | 15 | |||||||||
| Second purchase | 10 | |||||||||
| Thirs Purchase | 10 | |||||||||
| Total | 40 | |||||||||
| Less Ending inventory in hand | 20 | |||||||||
| Units sold | 20 | |||||||||
| Step-2:Calculation of cost of goods sold | ||||||||||
| Cost of 20 units sold is recorded as follows: | ||||||||||
| Units | Unit Cost | Total | ||||||||
| From Last Purchase | 10 | $ 77 | $ 770 | |||||||
| From second Purchase | 10 | $ 74 | $ 740 | |||||||
| Total | $ 1,510 | |||||||||
