Question

Salmone Company reported the following purchases and sales for its only product. Salmone uses a perpetual inventory system. Determine the cost assigned to cost of goods sold using LIFO.

Date	Activities	Units Acquired at Cost	Units Sold at Retail
May 1	Beginning Inventory	150 units @ $10.00
5	Purchase	220 units @ $12.00
10	Sales		140 units @ $20.00
15	Purchase	100 units @ $13.00
24	Sales		150 units @ $21.00

$2,260

$3,180

$1,860

$3,580

$2,100

Answer 1

Concepts and reason

Inventory costing methods: The costing method that is used to compute the cost of goods sold and ending inventory values to be reported in the financial statements is referred to as inventory costing method. The following are the four inventory costing methods:

First-in-first-out (FIFO): As the name implies, the inventory bought first is used or transferred out first. Since the goods purchased first would be sold first, the costs assigned to the inventory would be in the order of the cost of goods bought first to last.

Last-in-first-out (LIFO): Under the LIFO method, the inventory bought later is used or transferred out first. Since the goods purchased last would be sold first, the costs assigned to the inventory would be in the order of the cost of goods bought last to first.

Average cost method: The cost flow assumption method that distributes the total cost of goods available for sale among all the available units is referred to as average cost method.

Specific identification: The inventory costing method which uses the particular cost for specific units that cannot be transferable to other units is referred to as specific identification method.

Perpetual inventory system: Perpetual inventory system is an inventory costing methods. In this system the inventory is recorded on a regular basis. The inventory is recorded immediately at the time of purchase or sales made. It does not consider the physical inventory. Under this system of accounting for inventory, the inventory bought and sold is recorded when they are bought and sold. The up-to-date records are maintained for inventory and cost of goods sold. The records show the accurate figure at any point of time during the financial year.

Fundamentals

Inventory: It is an asset to the Company. These are goods of the company which can be in the forms of raw material, work in progress and finished goods. These goods were held by the company in day to day operations of the business.

Cost of Goods Sold: Cost of goods sold is the cost that the merchandiser incurs to produce the goods sold. It is an income statement item. These are the direct expenses incurred by the company to produce goods, including direct labor costs.

Ending inventory: Ending inventory refers to the amount of inventory on hand at the end of the accounting period.

The inventory bought last is used or transferred out first. Since the goods purchased last would be sold first, the costs assigned to the selling inventory would be in the order of the cost of goods bought last to first.

Determine the cost assigned to cost of goods sold under Last in, First out.

$\begin{array}{c}\\\left. \begin{array}{l}\\{\rm{Cost assigned to }}\\\\{\rm{cost of goods sold}}\\\end{array} \right){\rm{ = }}\left( \begin{array}{l}\\{\rm{140 units of sales from May5th purchases inventory }}\\\\{\rm{ + 100 units of sales from May15th purchased inventory }}\\\\{\rm{ + 50 units of sales from May 5th purchased inventory }}\\\end{array} \right)\\\\ = \left( {140\,{\rm{units}} \times \$ 12} \right) + \left( {100\,{\rm{units}} \times \$ 13} \right) + \left( {50\,{\rm{units}} \times \$ 12} \right)\\\\ = \$ 1,680 + \$ 1,300 + \$ 600\\\\ = \$ 3,580\\\end{array}$

Hence, the cost assigned to cost of goods sold using LIFO is $3,580.

Ans:

The cost assigned to cost of goods sold using LIFO is $3,580.