Question

In its first month of operations, Skysong, Inc. made three purchases of merchandise in the following sequence: (1) 320 units at $5, (2) 420 units at $7, and (3) 520 units at $8. Assuming there are 220 units on hand at the end of the period, compute the cost of the ending inventory under (a) the FIFO method and (b) the LIFO method. Skysong, Inc. uses a periodic inventory system.

		FIFO		LIFO
The Ending Inventory		$Enter a dollar amount		$Enter a dollar amount

Answer 1

Units	Unit Cost	Total Cost
320	5	1,600
420	7	2,940
520	8	4,160
1,260		8,700

a.

Ending inventory = 220 units

As per FIFO method, inventory purchased first, is charged to cost first. Thus, ending inventory consists of the units purchased later. Hence, ending inventory of 220 units will consists of units purchased at the latest at $8 per unit.

Cost of ending inventory = Number of units x Cost per unit

= 220 x 8

= $1,760

b.

As per LIFO method, inventory purchased at the latest is charged to cost first. Thus, ending inventory of 220 units will consists of the units purchased at the earliest at $5 per unit.

Cost of ending inventory = Ending inventory units x Cost per unit

= 220 x 5

= $1,100

		FIFO		LIFO
The Ending Inventory		$1,760		$1,100

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