Question

Bramble Company's inventory records show the following data for the month of September:

			Units			Unit Cost
Inventory,	September 1		100			$2.85
Purchases:	September 8		440			3.50
	September 18		300			4.00

A physical inventory on September 30 shows 160 units on hand.

Calculate the value of ending inventory and cost of goods sold if the company uses LIFO inventory costing and a periodic inventory system.

Ending inventory		$enter a value of ending inventory in dollars
Cost of goods sold		$enter a cost of goods sold in dollars

Answer 1

Answer)

LIFO Method: Under this method, it is presumed that the latest bought inventory is sold first and moving backwards. Under period inventory system, valuation of inventory is done at the end of a particular period (for e.g. at the end of a month).

In the given question, the Bramble Company follows LIFO method and uses a periodic inventory system.

Calculation of value of ending inventory

Date	Particulars	Units	Unit Cost	Total Cost
September'1	Inventory	100	$ 2.85	$ 285
September'8	Purchases	60	$ 3.5	$ 210
Total		160		$ 495

Value of ending inventory = (100 units X $ 2.85 per unit) + (60 units X $ 3.50 per unit)

                                               = $ 285 + $ 210

                                              = $ 495

Therefore the value of ending inventory is $ 495.

Note: Under LIFO method, it is assumed that the latest bought units will be first sold and moving backwards. Thus the ending inventory will comprise of the units which are bought at the earliest and moving forward. In the given question, the company had ending inventory 160 units. Thus under LIFO method, 100 units will be from the beginning inventory valued at $ 2.85 per unit and balance 60 units will be from the units bought on September 8 (being date on which immediately succeeding purchase is made) valued at $ 3.50 per unit.    

Calculation of Cost of Goods Sold

Date	Particulars	Units	Unit Cost	Total Cost
September'8	Purchases	380	$ 3.5	$ 1,330
September'18	Purchases	300	$ 4	$ 1,200
Total		680		$ 2,530

Cost of Goods Sold = (380 units X $ 3.50 per unit) + (300 units X $ 4.00 per unit)

                                    = $ 1,330 + $ 1,200

                                    = $ 2,530

Therefore the Cost of goods sold is $ 2,530.

Note: Under LIFO method, it is assumed that the latest bought units will be first sold and moving backwards. In the given question, the company sold 680 units. Thus under LIFO method, Cost of goods sold will comprise 300 units purchased on September’18 (being date on which latest purchase is made) valued at $ 4.00 per unit and balance 380 will be from the purchases made on September’8 (being the date on which immediately preceding purchase is made) valued at $ 3.50 per unit.

Working Note:

Calculation of Total number of units sold

Number of units sold = units in beginning inventory + units purchased – units in ending inventory

                                       = 100 units + (440 units + 300 units) – 160 units

                                      = 840 units – 160 units

                                      = 680 units

Therefore the company sold 680 units during the month of September.