Question

FIFO & LIFO Inventory

Study the FIFO and LIFO explanations in Chapter 8. 1) Compute ending FIFO inventory and cost of goods sold. Assume $90,000 sales; beginning inventory 500 units @$50; purchases of 400 units @$50; 100 units @$65; 400 units @$80. 2) Compute the cost of goods sold percentage of sales. 3) Compute ending LIFO inventory and cost of goods sold, using same assumptions. 4) Compute the cost of goods sold percentage of sales. 5) Comment on the difference in outcomes

Answer 1

		Units	Unit Cost
	Beginning	500	$50.00	$25,000
	Purchase	400	$50.00	$20,000
	Purchase	100	$65.00	$6,500
	Purchase	400	$80.00	$32,000
		1,400		$83,500
	Ending Inventory = 340 units
(A)	FIFO
		Units	Unit Cost
		100	$65.00	$6,500
		400	$80.00	$32,000
	Ending Inventory			$38,500
	COGS = Beginning inventory + purchases - ending inventory
	=	$25,000 + $58,500 - $38,500
	=	$45,000
	Cost of goods sold percentage of sales = (Cost of Sales ÷ Sales) = ($45,000 ÷ $90,000) = 50%
(B)	LIFO
		Units	Unit Cost
		500	$50.00	$25,000
	Ending Inventory			$25,000
	COGS = Beginning inventory + purchases - ending inventory
	=	$25,000 + $58,500 - $25,000
	=	$58,500
	Cost of goods sold percentage of sales = (Cost of Sales ÷ Sales) = ($58,500 ÷ $90,000) = 65%