In: Finance
Company records indicate the following data for widgets:
Date |
Item |
Quantity |
Unit Cost |
Sales Price |
Sept. 1 |
Balance |
17 |
$ 59 |
|
Sept. 3 |
Purchase |
3 |
$ 71 |
|
Sept. 8 |
Sale |
6 |
$ 118 |
|
Sept. 12 |
Sale |
7 |
$ 107 |
The Cost of Goods (COGS) sold will be different depending upon whether the company uses LIFO or FIFO. Of course, the ending inventory would be different as well.
The dollar difference between COGS computed using LIFO and COGS using FIFO is closest to:
A. $
56
B. $ 36
C. $ 12
D. $ 18
COGS when company uses LIFO
LIFO Means Last in First Out, hence the cost of goods sold will be
Date | Qty | Rate ($) | Product( Qty*Rate)($) |
Sept 8 | 3 | 71 | 213 |
Sept 8 | 3 | 59 | 177 |
Sept 12 | 7 | 59 | 413 |
TOTAL | 803 |
As the method used is LIFO the company sold on 8th September from the stock it recently purchased on 3rd Sept and then moves on to stock purchased on 1st Sept.
Similarly, when company uses FIFO
FIFO Means First in First Out, hence the cost of goods sold will be
Date | Qty | Rate($) | Product( Qty*Rate)($) |
Sept 8 | 6 | 59 | 354 |
Sept 12 | 7 | 59 | 413 |
TOTAL | 767 |
As the method used is FIFO the company sold on 8th September from the stock it first purchased on 1st Sept and then moves on to stock purchased on 3rd Sept when the 1st Sept stock is vanished fully.
Therefore $ difference between COGS computed using LIFO and FIFO is closest to :-
Total as per LIFO - Total as per FIFO
= 803 - 767
= $36
Hence, answer is "B" $36