Question

Addison, Inc. uses a perpetual inventory system. The following is information about inventory for the month of September: Sep. 1 Inventory 5 Sold 12 Purchased 18 Sold 30 Purchased Calculate Ending Inventory using: 30 units at $10 20 units 20 units at $20 15 units 10 units at $30 FIFO : LIFO: Using the folk Purcha Merche Septem Sales allowa

Answer 1

Solution: Under perpetual inventory system:

Ending inventory under FIFO = 10×$30 + 15×$20 = $600

Ending inventory under LIFO = 10*$10 + 5*$20 + 10*$30 = $500

computed as follows:

Sold Date Purhcased rate Total units units rate Total Units Balance Rate 30 $10 Sept.1 Total $ 300 $ 300 Sept. 5 20 $ 10 $ 200 10 $ 10 $ $ 100 100 Setp. 12 20 $20 $ 400 20 $10 $ $20 $ $ 100 400 500 Sept.18 15 $20 $ 300 10 5 $ 10 $ $20 $ $ 100 100 200 Sept.30 10 $30 $ 300 $10 $20 $30 $ 100 $ 100 $ 300 $ 500 Ending Inventory

Reasoning :

Under FIFO method, ending inventory contains units at very latest purchase price on the assumption that earlier purchased units are sold earlier so, latest purchased units remained in the stock.

While in LIFO method, ending inventory contains units at very oldest purchase price on the assumption that latest purchased units are sold earlier resulting the oldest purchased units to be remained in the stock.