Question

Snug-As-A-Bug Blankets has the following inventory data: July 1 Beginning inventory 23.0 units at $47.0 5 Purchases 140.0 units at $44.0 14 Sale 94.0 units 21 Purchases 70.0 units at $45.0 30 Sale 66.0 units Assuming that a perpetual inventory system is used, what is the ending inventory on a LIFO basis for July?

Answer 1

LIFO - Last-in-first-out is a method of valuation of inventory. As the name suggests, in case of LIFO the goods which comes last will be used first.

So in case of sale of 94 units on July 14, the units which came last i.e. the inventory purchased on July 5 will be used first.

Remaining inventory of July 5 purchase = Units purchased on July 5 - Units sold = 140 - 94 = 46 units.
Inventory after sale on July 14 will comprise of = Beginning inventory of 23 units on July 1 + 46 units purchased on July 5.

Now, the next sale of 66 units takes place on July 30, so the units which came last will be first used i.e. 66 units will be taken from purchase of July 21.

Remaining inventory of July 21 purchase = Units purchased on July 21 - Units sold = 70 - 66 = 4 units.
Inventory after sale on July 30 will comprise of = Beginning inventory of 23 units on July 1 + 46 units purchased on July 5 + 4 units purchased on July 21.

Cost of ending inventory = Cost of beginning inventory of 23 units @ $47 each + Cost of 46 units purchased on July 5 @ $44 each + Cost of 4 units purchased on July 21 @ $45 each = $1,081 + $2,024 + $180 = $3,285.