Question

In its first month of operation, Sunland Company purchased 350 units of inventory for $10, then 450 units for $11, and finally 390 units for $12. At the end of the month, 430 units remained. The company uses the periodic method.Compute the amount of phantom profit that would result if the company used FIFO rather than LIFO.

Answer 1

Answer:

$740

Explanation:

The computation of phantom profit is shown below:-

According to FIFO,

Closing Stock = (390 × $12) + ( 40 × $11)

= $4,680 + $440

= $5120

According to LIFO

Closing Stock = (350 × $10) + (80 × $11)

= $3,500 + $880

= $4,380

Amount of Phantom Profit

= $5120 - $4,380

= $740

Therefore for computing the phantom profit we simply deduct LIFO from FIFO.