Question

The Churchill Corporation uses a periodic inventory system and the LIFO inventory cost method for its one product. Beginning inventory of 21,600 units consisted of the following, listed in chronological order of acquisition: 12,800 units at a cost of $8.00 per unit = $102,400 8,800 units at a cost of $9.00 per unit = 79,200 During 2021, inventory quantity declined by 11,600 units. All units purchased during 2021 cost $12.00 per unit. Required: Calculate the before-tax LIFO liquidation profit or loss that the company would report in a disclosure note, assuming the amount determined is material. LIFO liquidation profit

Answer 1

Answer:

LIFO assumes that inventory purchased latest is sold first. In the closing inventory 8800 units are sold first in current year. The current cost is more than the cost of purchase. This leads to increase in profit because the cost of goods sold will be less.

Before tax LIFO liquidation profit is $37600

Note:

Calculate LIFO liquidation profit or loss as show below.

Units	Actual Cost	Current Cost	Profit per unit	Total profit
8800	9	12	3	26400
2800	8	12	4	11200
	Total Profit	$37600