XYZ Company sells widgets and uses the LIFO inventory valuation method. At the beginning of the year, XYZ had 1,000 widgets in inventory with a cost of $10 each. During the year, the company made the following inventory purchases:

• January 1: Purchased 2,000 widgets at $12 each.
• April 1: Purchased 1,500 widgets at $14 each.
• September 1: Purchased 2,500 widgets at $16 each.

During the year, XYZ sold 5,000 widgets for $20 each.

Calculate the cost of goods sold (COGS) and ending inventory using the LIFO method at the end of the year.

Solution:

1. Calculate the total cost of goods available for sale:

   • Beginning inventory: 1,000 widgets * $10 = $10,000
   • January purchase: 2,000 widgets * $12 = $24,000
   • April purchase: 1,500 widgets * $14 = $21,000
   • September purchase: 2,500 widgets * $16 = $40,000 Total cost of goods available for sale = $10,000 + $24,000 + $21,000 + $40,000 = $95,000

2. Calculate the cost of goods sold (COGS) using the LIFO method:

   • The last inventory purchased is the first to be sold.
   • COGS = (5,000 widgets * $16) + (1,500 widgets * $14) = $80,000 + $21,000 = $101,000

3. Calculate ending inventory:

   • Ending inventory = Total cost of goods available for sale - COGS
   • Ending inventory = $95,000 - $101,000 = -$6,000

 

Answer rating: 100% (QA)

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