Strods Company reported the following purchases and sales of its only product.Strods uses a perpetual inventory system.Determine the cost assigned to ending inventory using LIFO.
A)$5,440
B)$2,460
C)$2,590
D)$2,980
E)$2,860

Question

Strods Company reported the following purchases and sales of its only product.Strods uses a perpetual inventory system.Determine the cost assigned to ending inventory using LIFO. 
A)$5,440 
B)$2,460 
C)$2,590 
D)$2,980 
E)$2,860

Quizplus · Accepted Answer

Using LIFO, we assume that the last units purchased are the first ones sold. Therefore, we need to start with the most recent purchases until we have accounted for all the units sold and determine the cost of ending up with 120 units in inventory.

The purchase on May 12th is the most recent, so we start with those 60 units:

May 12: 60 units @ $40 = $2,400 
May 6: 30 units @ $38 = $1,140 
April 23: 30 units @ $36 = $1,080

Total cost of goods available for sale = $4,620

We have sold 180 units (90 + 60 + 30) and need to account for the cost of the remaining 120 units.

Starting with the May 6th purchase and moving backwards, we account for the first 30 units as ending inventory, but we still need to account for the remaining 90 units.

May 6: 30 units at $38 = $1,140 (ending inventory) 
April 23: 30 units at $36 = $1,080 
April 2: 30 units at $34 = $1,020

At this point, we have accounted for all 180 units sold and determined the cost of ending inventory to be $1,140. Therefore, the correct answer is C) $2,590.

Strods Company Reported the Following Purchases and Sales of Its