Question

In: Finance

Company records indicate the following data for widgets: Date Item Quantity Unit Cost Sales Price Sept....

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

Solutions

Expert Solution

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


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