Question

In its first month of operation, Crane Company purchased 100 units of inventory for $4, then 200 units for $5, and finally 140 units for $6. At the end of the month, 180 units remained. (a1) Compute the amount of phantom profit that would result if the company used FIFO rather than LIFO. The company uses the periodic method.

Answer 1

Cost of goods sold under FIFO Method

FIFO Method	Units	Rate	Amount
Sale from 1 purchase	100	$    4	$         400
Sale from 2 purchase	160	$    5	$         800
Cost of goods sold	260		$      1,200

Cost of goods sold under LIFO method

LIFO Method	Units	Rate	Amount
Sale from 3 purchase	140	$    6	$         840
Sale from 2 purchase	120	$    5	$         600
Cost of goods sold	260		$      1,440

Cost of goods sold will decrease by $240 ($1,440-$1,200) if company used FIFO method rather than LIFO method. so net profit will increase by $240

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