Question

Abbit Co uses LIFO for it's inventory valuation. Given the historical cost of product Z is $60, the selling price of product Z is $50, costs to sell product Z are $6, the replacement cost for product Z is $41, and the normal profit margin is 40% of sales price, what is the amount that should be used to value the inventory?

Answer 1

Answer:

$41

Explanation:

The last-in, first-out inventory valuation method establishes that the inventory will be valued at the same price as the last units purchased or produced. This system considers that the last units that enter our merchandise inventory are the first ones to be sold.

In Abbit's case, the last units to enter their inventory cost $41 per unit (replacement cost). SO if we use the LIFO system then we will use the $41 per unit cost.