Question

Shown below is activity for one of the products of Denver Office Equipment:

January 1 balance, 680 units @ $55 $37,400
Purchases:
January 10:	680 units @ $60
January 20:	1,190 units @ $62
Sales:
January 12:	850 units
January 28:	820 units

Required:

Compute the January 31 ending inventory and cost of goods sold for January, assuming Denver uses LIFO perpetual inventory system.

Answer 1

Solution:

As per the information given in the question we have

Beginning Inventory = 680 units ; Purchases = ( 680 + 1190 ) = 1870 units ;

Sales = ( 850 + 820 ) = 1670 units ;

Thus the number of units goods sold is 1670 units.

The formula for calculating the ending inventory is

Ending Inventory = Beginning Inventory + Purchases - Sales

Thus the ending inventory = 680 + 1870 – 1670 = 880 units

Calculation of Cost of goods sold in January , as per LIFO perpetual Inventory system :

As per the Last In First Out (LIFO) perpetual Inventory system, the latest units purchased are assumed to be sold first.

Thus the production units that are purchased most recently, i.e., 1,190 units from the purchases made on January 20 and the balance of ( 1670 – 1190 ) = 480 units from the purchases made on January 10, shall be included in the Cost of goods sold first.

Thus Cost of goods sold, assuming LIFO Inventory = ( 1,190 * $ 62 ) + ( 480 * $ 60 )

= $ 73,780 + $ 28,800 = $ 102,580

Thus the Cost of goods sold in January , as per LIFO perpetual Inventory system = $ 102,580

Calculation of January 31 ending Inventory as per LIFO perpetual Inventory System :

The balance number of units from the purchases made on January 10 and the ( 680 - 480 ) = 200 units and other 680 units from the beginning Inventory shall form a part of the ending Inventory.

Thus the ending Inventory = ( 200 * $ 60 ) + ( 680 * 55 )

= $ 12,000 + 37,400 = $ 49,400

Thus the January 31 ending Inventory as per LIFO perpetual Inventory System = $ 49,400