Question

Waterway Industries has the following data related to an item of inventory:

Inventory, March 1		360 units	@ $2.40
Purchase, March 7		1450 units	@ $2.50
Purchase, March 16		290 units	@ $2.55
Inventory, March 31		510 units

The value assigned to ending inventory if Waterway uses LIFO is

$1224.

$1299.

$1239.

$1290.

Answer 1

LIFO stands for last in first out which assumes that last purchased items are the one which is sold out first.

Date	Purchases	Cost of goods sold	Balance
March 1	Beginning		360 units x $ 2.40 = $ 864
March 7	1,450 units x $ 2.50= $ 3,625		360 units x $ 2.40 = $ 864 1,450 units x $ 2.50 = $ 3,625
March 16	290 units x $ 2.55= $ 739.50		360 units x $ 2.40 = $ 864 1,450 units x $ 2.50 = $ 3,625 290 units x $ 2.55 = $ 739.50
		290 units x $ 2.55 = $ 739.50 1,300 units x $ 2.50 = $ 3,250	360 units x $ 2.40 = $ 864 150 units x $ 2.50 = $ 375 Total = $ 1,239

Here, total units available for sale is 2,100 units. It is given that ending inventory consists of 510 units which means that 1,590 units are sold out. These 1,590 units consists of first 290 units from last purchase made, balance 1,300 units from March 7 purchase made because we are using LIFO method. Now there is a balance of 150 units in the March 7 purchase made. So the ending inventory of 510 units consists of 150 units from March 7 purchases and 360 units from beginning balance.

Ending inventory = (360 units x $ 2.40)+(150 units x $ 2.50)

Ending inventory = $ 1,239.

Hence, option C is the correct answer.

SUMMARY:

The value of ending inventory using LIFO method is calculated as $ 1,239.

Hence, option C is the correct answer.