Question

A company had the following purchases and sales during its first year of operations:

	Purchases	Sales
January:	22 units at $180	14 units
February:	32 units at $185	12 units
May:	27 units at $190	16 units
September:	24 units at $195	15 units
November:	22 units at $200	28 units

On December 31, there were 42 units remaining in ending inventory. Using the Perpetual LIFO inventory valuation method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)

Answer 1

In perpetual inventory system, transactions relating to inventory are recorded immediately when they take place.

In LIFO method of inventory valuation, the goods which are purchased last ( i.e. purchased recently ) are sold out first.

Here it is said to assume that all sales were made on the last day of the month, which indicates that the purchases are made before sales.

Month	Purchases	Sales ( cost )	Balance
January	22 units * $180 = $3,960		22 units * $180 = $3,960
31 January		14 units * $180 = $2,520	8 units * $180 = $1,440
February	32 units * $185 = $5,920		8 units * $180 = $1,440 + 32 units * $185 = $5,920
28 February		12 units * $185 = $2,220	8 units * $180 = $1,440 + 20 units * $185 = $3,700
May	27 units * $190 = $5,130		8 units * $180 = $1,440 + 20 units * $185 = $3,700 + 27 units * $190 = $5,130
31 May		16 units * $190 = $3,040	8 units * $180 = $1,440 + 20 units * $185 = $3,700 + 11 units * $190 = $2,090
September	24 units * $195 = $4,680		8 units * $180 = $1,440 + 20 units * $185 = $3,700 + 11 units * $190 = $2,090 + 24 units * $195 = $4,680
30 September		15 units * $195 = $2,925	8 units * $180 = $1,440 + 20 units * $185 = $3,700 + 11 units * $190 = $2,090 + 9 units * $195 = $1,755
November	22 units * $200 = $4,400		8 units * $180 = $1,440 + 20 units * $185 = $3,700 + 11 units * $190 = $2,090 + 9 units * $195 = $1,755 + 22 units * $200 = $4,400
30 November		22 units * $200 = $4,400 + 6 units * $195 = $1,170 [ total 28 units sold ]	8 units * $180 = $1,440 + 20 units * $185 = $3,700 + 11 units * $190 = $2,090 + 3 units * $195 = $585

After november there were no transaction hence the ending inventory of November 30 is the ending inventory of December 31.

Ending inventory on December 31 = $1,440 + $3,700 + $2,090 + $585 = $7,815

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