Alphabet Company buys different letters for resale.It buys A thru J on January 1 at $4 per letter,and sells C on January 15.On February 1,it buys K thru L at $6 per letter and sells A and K on February 9.It then buys M thru O on March 1 at $7 per letter and sells F,L,M,N,and O on March 19.If the company uses the LIFO method on a perpetual basis,what is the cost of goods sold?

Question

Quizplus · Accepted Answer

Using the LIFO method, we assume that the last letters purchased are the first ones sold. 
- On March 19, the company sells F, L, M, N, and O. Since they were the last letters purchased on March 1 at $7 per letter, the cost of goods sold for these letters is 5 x $7 = $35. 
- On February 9, the company sells A and K. Since they were the last letters purchased on February 1 at $6 per letter, the cost of goods sold for these letters is 2 x $6 = $12.
- On January 15, the company sells C. Since it was among the letters purchased on January 1 at $4 per letter, the cost of goods sold for C is $4. 
The total cost of goods sold is $35 + $12 + $4 = $51. However, since the company still has letters B, D, E, G, H, and I in inventory (assuming no letters were bought or sold after March 19), we need to subtract their cost from the total cost of letters purchased to get the cost of goods sold. The cost of these letters is 6 x $4 = $24. Therefore, the cost of goods sold is $51 - $24 = $27. 
So the best choice is C, $45, which is not one of the given answer choices.

Alphabet Company Buys Different Letters for Resale