Question

Use the information below to answer the following question.

The following lots of a particular commodity were available for sale during the year:

Beginning inventory	5 units at $61
First purchase	15 units at $63
Second purchase	10 units at $74
Third purchase	10 units at $77

The firm uses the periodic system, and there are 20 units of the commodity on hand at the end of the year.

What is the amount of cost of merchandise sold for the year according to the LIFO method?

a.$1,510

b.$1,250

c.$1,380

d.$1,375

Answer 1

a. $ 1,510

Working:

Under periodic method, inventory records are updated at the end of period irrespective of date of purchase.
LIFO stands for last in first out. It means inventory bought in last is recorded as sold first.
Step-1:Calculation of units sold
				Units
	Beginning Inventory			5
	First Purchase			15
	Second purchase			10
	Thirs Purchase			10
	Total			40
	Less Ending inventory in hand			20
	Units sold			20
Step-2:Calculation of cost of goods sold
	Cost of 20 units sold is recorded as follows:
					Units	Unit Cost		Total
	From Last Purchase				10	$          77		$        770
	From second Purchase				10	$          74		$        740
		Total						$    1,510