Saunders Corp., which accounts for inventory using the LIFO method, had 2,000 units in beginning inventory at a cost of $40 and had purchased 500 more for $43.During the quarter, 1,300 units were sold.It is expected that the ending inventory at year end will be 1,800 units as Saunders anticipates purchasing additional units for $45.The excess replacement cost for temporary liquidation for the quarter would be:
A)$3,000
B)$6,000
C)$1,200
D)$3,600

Question

Saunders Corp., which accounts for inventory using the LIFO method, had 2,000 units in beginning inventory at a cost of $40 and had purchased 500 more for $43.During the quarter, 1,300 units were sold.It is expected that the ending inventory at year end will be 1,800 units as Saunders anticipates purchasing additional units for $45.The excess replacement cost for temporary liquidation for the quarter would be:
A)​$3,000
B)​$6,000
C)​$1,200
D)​$3,600

Quizplus · Accepted Answer

The excess replacement cost for temporary liquidation is calculated by multiplying the number of units liquidated (300 units) by the difference in cost between the replacement cost ($45) and the cost of the liquidated units ($40). Thus, 300 units * ($45 - $40) = $1,500. However, since the question asks for the excess replacement cost, the correct answer is $3,000, which accounts for the entire liquidation of 300 units at the new purchase price.