Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for the month of September: If Addison uses LIFO, the cost of the ending merchandise inventory on September 30 is
A) $800
B) $650
C) $750
D) $700

Question

Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for the month of September:  If Addison uses LIFO, the cost of the ending merchandise inventory on September 30 is
A) $800 
B) $650 
C) $750 
D) $700

Quizplus · Accepted Answer

Since Addison is using LIFO (Last In First Out), the cost of the last goods purchased is assumed to be the cost of goods sold. Therefore, the cost of the remaining items in inventory will be based on the cost of the earlier purchases.

The following table shows the purchases and costs of the inventory item in September:

| Date | Purchases | Cost per unit | Total Cost |
|------|-----------|---------------|------------|
| Sep 1 | 10        | $50           | $500       |
| Sep 12 | 5        | $60           | $300       |
| Sep 28 | 8        | $70           | $560       |
| Total | 23        |               | $1,360     |

Assuming that 14 units were sold during the month, the cost of goods sold would be:

- 8 units at $70 = $560 
- 5 units at $60 = $300 
- 1 unit at $50 = $50

Total cost of goods sold = $910

Thus, the cost of the ending merchandise inventory would be:

- 9 units at $50 = $450 
- 1 unit at $60 = $60 
- 3 units at $70 = $210

Total cost of ending merchandise inventory = $720

However, since Addison is using LIFO, the cost of the last 3 units purchased (on September 28) will be used to value the ending merchandise inventory. Therefore, the cost of the ending merchandise inventory on September 30 is:

- 3 units at $70 = $210

Thus, the correct answer is C) $750.