In its first month of operation, Wildhorse Co. purchased 320 units of inventory for $5, then...
In its first month of operation, Wildhorse Co. purchased 320
units of inventory for $5, then 420 units for $6, and finally 360
units for $7. At the end of the month, 400 units remained.
Compute the amount of phantom profit that would result if the
company used FIFO rather than LIFO.
Homework Answers
Solution 1,
first of all the first question is what is Phantom profit ?
answer : phantom profit is the difference between profits arising from usage of different methods.
Purchases:
320 units for $5
420 units for $6;
360 units for $7;
Total 1100 units
Sold 700 units
Ending 400 units
Under FIFO
COGS = (320 x $5) + (380 x $6) = $3,880
Under LIFO
COGS = (360 x $7) + (340 x $6) = $4,560
Phantom Profit = $4,560- $3,880 = $680
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