Keck Co. had 150 units of product A on hand at January 1, 2014, costing $21 each. Purchases of product A during January were as follows: A physical count on January 31, 2014 shows 200 units of product A on hand. The cost of the inventory at January 31, 2014 under the LIFO method is

Question

Keck Co. had 150 units of product A on hand at January 1, 2014, costing $21 each. Purchases of product A during January were as follows:  A physical count on January 31, 2014 shows 200 units of product A on hand. The cost of the inventory at January 31, 2014 under the LIFO method is

Quizplus · Accepted Answer

To calculate cost of goods sold (COGS) under LIFO, we start with the most recent purchases and work our way back. Therefore, the cost of the 100 units purchased on January 15 is $24 per unit, and the cost of the 50 units purchased on January 25 is $25 per unit.

COGS = (100 x $24) + (50 x $25) = $2,400 + $1,250 = $3,650

To determine the cost of the ending inventory, we use the cost of the oldest units first, which were the 50 units at $21 per unit from January 1 and the 50 units at $24 per unit from January 15.

Ending inventory = (50 x $21) + (50 x $24) = $1,050 + $1,200 = $2,250

Therefore, the cost of the inventory at January 31, 2014, is:

COGS + Ending Inventory = $3,650 + $2,250 = $5,900

But since we know that there were only 200 units on hand at the end of January, we need to adjust the ending inventory amount.

200 units at LIFO cost = 50 units at $21 per unit + 150 units at $24 per unit = $3,750 + $3,600 = $7,350

$7,350 - $5,900 = $1,450 reduction in ending inventory

So the cost of the ending inventory at LIFO is:

$2,250 - $1,450 = $800

Therefore, the cost of the inventory at January 31, 2014, under the LIFO method is:

COGS + Ending Inventory = $3,650 + $800 = $4,450

Thus, the best choice is C) $4,250.

Keck Co Had 150 Units of Product a on Hand at at January