Question

Suppose that Dom began a landscaping business in 2020. In that year, he adopted the last-in first-out (LIFO) inventory-flow method for his business inventory of shrubbery by using it for the year on his tax return.

In 2019, he purchased the following four batches of shrubs (total cost per batch below).

   Shrubs         Purchase Date        Direct Cost         Other Inventoriable Costs      Total Cost
      200               July 21                 $ 2,000              $ 200                                $ 2,200

      150              August 15              $ 2,000              $ 100                                $ 2,100
      100             October 30              $ 2,200              $ 400                                $ 2,600
      140            November 10            $ 2,700              $ 100                                $ 2,800

In 2020, Dom sold 200 shrubs. In 2021, Dom purchased three more batches of shrubs at the following total cost per batch below. Just before year end in 2021, he also sold 50 shrubs:

                       Shrubs             Purchase Date               Total Cost
                        100                 Early spring                   $ 2,400
                        125                    Summer                      $ 2,500
                        100                        Fall                         $ 2,600

a.     (10 points) What cost of goods sold and ending inventory would Dom record if he elects to use the LIFO method in 2020?

b.    (10 points) What will be his cost of goods sold and ending inventory in 2021 under the LIFO method?

c.     (10 points) How would you answer (a) change if Dom had initially selected the first-in, first-out (FIFO) method instead of LIFO?

d.    (10 points) How would you answer (b) change if Dom had initially selected the first-in, first-out (FIFO) method instead of LIFO?

Answer 1

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