Biscuit Bakery had the following activity in its inventory account during August 20X3. $\begin{array}{lllcc}
\text { Date } & \text { Activity } & \text { Units } & \begin{array}{c}
\text { Cost per } \
\text { Unit Cost }
\end{array} & \text { Total } \
\hline \text { August 1 } & \text { Beginning inventory } & 100 & \$ 3.00 & \$ 300 \
\text { August 3 } & \text { Purchase } & 40 & 3.10 & 124 \
\text { August 7 } & \text { Sale } & 50 & & \
\text { August 12 } & \text { Purchase } & 50 & 3.20 & 160 \
\text { August 16 } & \text { Sale } & 70 & & \
\text { August 23 } & \text { Sale } & 40 & & \
\text { August 30 } & \text { Purchase } & 60 & 3.30 & 198
\end{array}$ What is the ending inventory balance at August 31,20X3,for Biscuit Bakery if the company uses perpetual LIFO as its inventory valuation method?
A)$240
B)$270
C)$288
D)$300
E)$438

Question

Quizplus · Accepted Answer

To calculate the ending inventory balance using perpetual LIFO, we need to analyze the inventory activity in reverse chronological order.

August 31: 
The last purchase on August 30 brought in 60 units at $3.30 per unit. These units are the first to be deducted under LIFO. 
Total cost = 60 * 3.30 = $198 
Remaining units = 40

August 23: 
The next sale was on August 23 for 40 units. Since the most recent purchase was made on August 30, we need to deduct these units from the second most recent purchase made on August 12. 
Remaining units from August 30 purchase = 40 
Cost of remaining units = 40 * 3.30 = $132 
Units sold = 40 
Remaining units from August 12 purchase = 10 
Total cost = 10 * 3.20 + 132 = $164 
Remaining units = 50

August 16: 
The next sale was on August 16 for 70 units. We deduct these units from the most recent purchase on August 30. 
Remaining units from August 30 purchase = 0 
Cost of remaining units = 0 
Units sold = 70 
Remaining units from August 12 purchase = 50 
Total cost = 50 * 3.20 = $160 
Remaining units = 50

August 12: 
The next purchase was made on August 12 for 50 units at $3.20 per unit. These units are the first to be deducted after the August 30 purchase. 
Total cost = 50 * 3.20 = $160 
Remaining units = 100

August 7: 
The next sale was on August 7 for 50 units. Since the most recent purchase was made on August 12, we need to deduct these units from the second most recent purchase made on August 3. 
Remaining units from August 12 purchase = 50 
Cost of remaining units = 50 * 3.20 = $160
Units sold = 50 
Remaining units from August 3 purchase = 10 
Total cost = 10 * 3.10 + 160 = $191 
Remaining units = 40

August 3: 
The next purchase was made on August 3 for 40 units at $3.10 per unit. These units are the first to be deducted after the August 12 purchase. 
Total cost = 40 * 3.10 = $124 
Remaining units = 50

August 1: 
The starting inventory was 100 units at $3.00 per unit. These units are the first to be deducted after the August 3 purchase. 
Total cost = 100 * 3.00 = $300 
Remaining units = 50

Therefore, the ending inventory balance at August 31, 20X3, for Biscuit Bakery if the company uses perpetual LIFO as its inventory valuation method is: 
$288 (10 units at $3.20 per unit from August 12 purchase + 40 units at $3.10 per unit from August 3 purchase + 50 units at $3.00 per unit from starting inventory)

Biscuit Bakery Had the Following Activity in Its Inventory Account