Use this inventory information for the month of May to answer the following questions. Assuming that a perpetual inventory system is used,what is ending inventory on a LIFO basis?
A)More information is needed.
B)$10,240
C)$5,440
D)$5,760

Question

Use this inventory information for the month of May to answer the following questions.  Assuming that a perpetual inventory system is used,what is ending inventory on a LIFO basis?
A)More information is needed. 
B)$10,240 
C)$5,440 
D)$5,760

Quizplus · Accepted Answer

In LIFO (last in, first out) method, the inventory is valued based on the assumption that the last items purchased are the first ones sold. So, we need to use the cost of the latest purchases to value the ending inventory.

From the given data, we can see that the purchases made in May are at higher prices than the beginning inventory. Therefore, we assume that the ending inventory consists of the beginning inventory (30 units) and the purchases made at $20 (10 units) and $22 (20 units). This gives us a total of 60 units.

Using LIFO, we would assume that the last units purchased (20 units @ $22) are sold first. So, the cost of the ending inventory would be calculated as follows:

20 units @ $22 = $440
10 units @ $20 = $200
Total cost of ending inventory = $440 + $200 = $640

Therefore, the correct answer is C) $5,440.

Use This Inventory Information for the Month of May to Answer