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 uses LIFO, the most recent costs are matched with the cost of goods sold first, and the older costs are matched with the ending inventory. Therefore, the cost of the ending merchandise inventory on September 30 is calculated by taking the cost of the remaining 30 units (10 from beginning inventory and 20 purchased on September 22) at the older cost of $30 per unit. This gives us a total of $900, which is the cost of the ending inventory. However, since the most recent cost of $25 per unit for the 10 units sold on September 24 is lower than the older cost of $30, we need to adjust the cost of the ending inventory to reflect this lower cost. The adjustment is calculated as (10 units x $5 per unit) = $50. Therefore, the final cost of the ending merchandise inventory on September 30 is $900 - $50 = $850. Since the options given are not the same as this calculated figure, the closest answer is C, $750.