Question

Shown below is activity for one of the products of Denver Office Equipment: bints eBook January 1 balance, 540 units e$50 $27,000 Purchases: January 540 units @ $55 10: January 1,020 units $56 20: Sales: January 910 units 12: January 790 units 28: Print References Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Denver uses LIFO and a perpetual inventory system. Ending inventory Cost of goods sold

Answer 1

As per the last in first out (LIFO) method, the units that were purchased last are sold first. Means most latest or recent purchases are the first to be sold. Under perpetual system, inventory records are updated after every sale or purchase transaction.

Calculation of cost of ending inventory:

First sale happened on January 12  for 910 units. These units were sold out of units purchased on January 10 (540 units) and beginning inventory (370 units), i.e. last purchases. Remaining units in beginning inventory is 170 units (i.e. 540 -370). Second sale happened on January 28 for 790 units. These units are sold from January 20 purchases. Units left or remaining units are as follows:

Remaining units from purchases of January 20 = 230 units (i.e. 1020 - 790) @ $56 per unit = $12880.

Remaining units in beginning inventory on January 1 = 170 units (i.e. 540 - 370) @ $50 per unit = $8500

Total cost of ending inventory = $12880 + $8500 = $21380

Calculation of cost of goods sold:

We will follow the sales pattern as written in previous step. Cost of goods sold is below:

Out of 910 units sold on January 12, 540 units were sold  from January 10 purchases at $55 per unit = 540 * $55 = $29700

Out of 910 units sold on January 12, 370 units were sold  from beginning inventory at $50 per unit = 370 * $50 = $18500

790 units sold on January 28 from January 20 purchases at $56 per unit = 790 * $56 = $44240

Total cost of goods sold = $29700 + $18500 + $44240 = $92440