Denzel Inc., uses the LIFO cost-flow assumption to value inventory. Inventory fo

Question

Denzel Inc., uses the LIFO cost-flow assumption to value inventory. Inventory for Denzel Inc. on January 1, 2015 was 400 units at a LIFO cost of $60 per unit. During the first quarter of 2015, Denzel purchased 500 units costing an average of $70 per unit, and sold 600 units at a retail price of $100 per unit.

Assuming Denzel Inc. does not expect to replace the units of beginning inventory sold, what is the amount of cost of goods sold for the quarter ended March 31, 2015

Assuming Denzel Inc. expects to replace the units of beginning inventory sold before the year-end at a per unit cost of $80, what is the amount of cost of goods sold for the quarter ended March 31, 2015?

Explanation / Answer

1. Assuming Denzel Inc. does not expect to replace the units of beginning inventory sold, then Cost of goods sold :

As Inc. uses LIFO cost-flow assumption to value inventory,

Out of 600 units sold 500 units is from last purcahsed 500 units an average of $70 per unit = $ 35,000

Remaining 100 units (600-500) would be from opening inventory i.e. $ 60 per unit = $ 6,000

So, Total Cost of goods sold = $ 41,000

2. Assuming Denzel Inc. expects to replace the units of beginning inventory sold before the year-end at a per unit cost of $80

Out of 600 units sold 500 units is from last purcahsed 500 units an average of $70 per unit = $ 35,000

Remaining 100 units (600-500) would be taken as replacement cost i.e. $ 80 per unit = $ 8,000

So, Total Cost of goods sold = $ 43,000

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