Use the information below to answer the following question. The following lots o

Question

Use the information below to answer the following question.

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

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

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

Explanation / Answer

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

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