Answer:
1. The Cost of Goods Sold for the period ended 2018 is 682,950.
2. If FIFO method has been used, the Cost of Goods Sold would have been 660,525. Hence, LIFO method has reduced Gross Profit by 22,425 (682,950 - 660,525).
Explanation:
LIFO is one of the methods to calculate cost of goods sold. It assumes that the recently purchased stock is sold first. When a company uses LIFO method, it gets a higher cost of goods sold figure because of Inflation factor.
In the example shared, the company has opening stock of 21,000 units which were purchased at a unit price of $8. During the Year, further units were purchased but this time at a unit cost of $9.95. It is given that the Sales were of 70,500 units. Since the company uses LIFO method, it must remove the recently purchased stock from its books first. So,
61,000 * 9.95 = $606,950.
But the company sold 70,500 units. It means that 61,000 of recently purchased goods were sold and the remaining (70,500 - 61,000) from opening stock.
9,500 * 8 = $76,000. This gives us total CGS of $682,950 (606,950 + 76,000).
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